South Korea April inflation slows, but still near central bank target

[SEOUL] South Korea's annual inflation eased slightly in April as utility and fresh food costs fell, data showed on Tuesday, with prices still reflecting improving consumption and the economy's ongoing recovery.

The finance ministry said chances of inflation picking up was limited in the near term due to recent changes in global oil prices and improved supply of farm products. Economists also expect no change to near-term monetary policy with annual inflation lingering near the central bank's 2 per cent target.

Asia's fourth-largest economy expanded faster than expected in the first quarter boosted by a surge in exports that have gained from a broad recovery in the global economy, lending a positive outlook for the coming months.

The consumer price index in April rose 1.9 per cent from a year earlier, Statistics Korea data showed, slowing from a 2.2 per cent increase in March and lagging the 2.0 per cent forecast in a Reuters poll.

Prices eased 0.1 per cent from March, slightly below the median forecast of no change.

The index for fresh vegetables and utilities such as gas, electricity and tap water fell in April, leading to softer inflation. A finance ministry official said global oil prices were having greater sway on the index than consumption.

"The further we go into the year, we'll see inflation capped, and the year on a whole may not see inflation over 2 per cent. We might have to wait until next year to see real demand-led inflation," said Stephen Lee, chief economist at Meritz Securities in Seoul.

Mr Lee said he sees the central bank raising interest rates some time next year.

Services inflation in April stood at 2.2 per cent from a year earlier, stepping up from 2.1 per cent in March and marking the fastest growth since January this year.

Annual core inflation, which strips out volatile food and fuel prices, stood at 1.3 per cent, versus a 1.4 per cent rise in March.

The Bank of Korea said recently it plans to keep monetary policy accommodative as demand-side pressures were not expected to spike anytime soon.

The finance ministry has also been managing inflation expectations, with minister Yoo Il-Ho saying on Monday consumption is not yet as strong as the government would like it to be.

A majority of analysts expect the central bank to keep its base interest rate at 1.25 per cent this year and start raising them next year. The next central bank review is on May 25.

REUTERS