South Korea October inflation picks up, but central bank has leeway to ease further

[SEOUL] South Korea's annual inflation in October picked up for the first time in three months but was still well clear of the lower threshold of the central bank's medium term target, leaving sufficient headroom to cut rates further if required.

The consumer price index rose 1.2 per cent in October from a year earlier, Statistics Korea data showed on Tuesday, gaining at a slower pace compared to a 1.4 per cent rise tipped in a Reuters survey of 13 analysts.

It was slightly ahead of the 1.1 per cent annual rise seen in September.

On monthly terms, the index dropped 0.3 per cent in October, compared to the median pick for a 0.1 per cent fall and marked the biggest decline since October last year. The index was down 0.1 per cent in September.

Annual core inflation, which strips out volatile agriculture and oil products prices, rose 1.8 in October from 1.9 per cent in September. It was the slowest annual increase since February.

The Bank of Korea has a three-year 2.5 to 3.5 inflation target band but annual inflation has stayed in the 1-percent range since January 2013, prompting criticism from opposition politicians that the target is unrealistic and needs to be revised lower.

However, the bank has said that any changes will occur at the end of the three-year review period in 2015, and forecasts inflation to rise to the 2-per cent range next year as current low price pressures stem from supply-side factors and not demand.

The central bank has cut interest rates twice this year in a bid to prop up growth and complement government efforts to support the economy.

The government has launched a package of stimulus policies and eased regulations since Finance Minister Choi Kyung-hwan took office in July.

REUTERS