South Korea 2019 inflation sets record low, more rate cuts seen

[SEOUL] South Korea's consumer inflation picked up in December but its full-year reading set a record low as consumer demand remained shaky, reinforcing expectations that the central bank will need to cut interest rates again next year.

The consumer price index rose 0.7 per cent in December from a year earlier, the statistics agency said on Tuesday, up sharply from a 0.2 per cent rise in November and slightly faster than a median 0.6 per cent gain tipped in a Reuters survey.

Still, the average rate of inflation for all of 2019 came to a record-low 0.4 per cent, compared with 1.5 per cent in 2018, as pessimistic consumer and corporate demand as well as good weather conditions pressured price growth across the board.

The annual inflation rate falls far below the central bank's target of 2 per cent and although the Bank of Korea expects inflation to rise to 1 per cent next year, the outlook remains weak with the economy headed for only a modest recovery.

"The fading effects from the low price levels and a likely economic recovery will help boost inflation next year but I think the low inflation pattern will persist for a while," said Park Sang-hyun, chief economist at Hi Investment & Securities.

The Bank of Korea cut its key policy rate twice this year by a combined 50 basis points to a joint-record low of 1.25 per cent, joining the global easing trend, to support cooling domestic demand and growth.

The government aims to boost fiscal spending by a whopping 9.1 per cent next year to support the economic recovery even as the fiscal deficit widens, but analysts said the central bank may need to help by further cutting interest rates.

South Korea's financial markets are closed on Tuesday and Wednesday to mark the change of the year and will resume trading on Thursday.

REUTERS