South Korea June inflation eases, but stays near central bank target

[SEOUL] Consumer inflation in South Korea eased slightly in June as falling utility costs offset soaring fresh food prices, government data showed on Tuesday, with the overall price impulse suggesting a steady improvement in consumption and broad economic growth.

The consumer price index rose 1.9 per cent in June from a year earlier, data showed on Tuesday, down from the 2 per cent increase in May, and lagging the 2 per cent forecast in a Reuters poll. The index declined 0.1 per cent a month earlier, after edging up 0.1 per cent in May.

Asia's fourth largest economy grew at its quickest pace in six quarters in January-March period, thanks to robust construction sector activity and exports. Moderate price pressure near the BOK's target of 2 per cent since early this year suggested private consumption is steadily improving.

"Agricultural product prices have been volatile, but gains in service costs have been sustaining the overall price pressure," Park Jung-Woo, an economist at Korea Investment and Securities said.

Tuesday's data showed the costs for electricity, gas and tap water declined 1.6 per cent on-year. That was partly offset by inflation from fresh food products, which stood at 10.5 per cent in June, reflecting rapidly rising egg prices sparked by an outbreak of avian influenza.

Service costs gained 1.9 per cent in June from a year earlier, driven by a 9.1 per cent surge in package tourism costs and a 19.5 per cent jump in insurance premium fees, the report showed.

"Inflation is expected hover around 2 per cent throughout this year, and won't accelerate much further to a level that calls for a change in monetary policies," Mr Park said, adding that he believes the Bank of Korea to keep the base rate at a record-low 1.25 per cent for the time being.

Core inflation, which strips out volatile food and fuel prices, was up 1.4 per cent, after similar growth in May.

REUTERS