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South Korea's April inflation holds at 1% as oil continues to drag

[SEOUL] South Korea's annual inflation stayed at 1.0 per cent for a second month in April, reflecting the effects of low global oil prices, and obscuring the economy's ongoing modest recovery.

First-quarter GDP growth halved from the previous three-month period, but recent consumer and business sentiment data has shown the outlook is positive for coming months.

The consumer price index rose 1.0 per cent in April from a year earlier, Statistics Korea data showed on Tuesday, unchanged from a 1.0 per cent increase in March and matching the forecast tipped in a Reuters survey.

In monthly terms, the index rose 0.1 per cent, also in line with the median forecast of a 0.1 per cent rise in the same poll.

"This doesn't look like a severe slowdown to me when we look at core inflation that takes away the effects of oil," said Jeong Won Il, economist at Yuanta Securities Korea who does not see changes in interest rates this year. "Looking at the numbers I think we'll be able to reach the central bank's inflation target of 2 per cent in the latter half of this year."

The central bank expects inflation to start gradually picking up after June. A majority of analysts see the bank cutting interest rates again soon to give growth an upward push before inflation approaches the bank's inflation target.

Annual core inflation, which strips out volatile food and fuel prices, stood at 1.8 per cent, versus a 1.7 per cent rise in March. This matched a 1.8 per cent gain in February this year.

Reflecting low global oil prices, the index for industrial goods fell 0.6 per cent on-year in April, the data showed.

The industrial goods index showed annual deflation for petroleum products such as gasoline (-9.9 per cent), diesel (-15.2 per cent) and LPG for cars (-11.9 per cent) last month.

The sub-indices also showed deflation for electricity, tap water and gas was 8.0 per cent on-year, mainly due to recent city gas price cuts.

Services inflation at 2.2 per cent in annual terms was the lowest since November 2015. A breakdown showed fewer group tours and city gas connections had slightly dragged down the services index from 2.3 per cent in March.

The Bank of Korea's base policy rate is currently at a record low of 1.50 per cent. Its next rate-setting meeting is due on May 13.

REUTERS