South Korea inflation picks up after one-off telecom fee cuts end
The figures come as policymakers debate the case for more economic stimulus to cushion the economy from US President Donald Trump’s tariff campaign
[SEOUL] South Korea’s consumer inflation quickened as the impact of temporary cuts to communications fees faded and food prices rose, clouding the case for the central bank to lower borrowing costs later this month.
Consumer prices climbed 2.1 per cent in September from a year earlier, accelerating from August’s 1.7 per cent gain, the Ministry of Data and Statistics said on Thursday (Oct 2). Economists surveyed by Bloomberg had forecast the pace of price growth would rise to 2 per cent.
Core inflation, which excludes volatile food and energy prices, advanced 2 per cent after climbing 1.3 per cent in August, the data showed. Both gauges are now hovering near the Bank of Korea’s (BOK) 2 per cent inflation target.
A large part of the jump in the CPI gauge resulted from the expiration of SK Telecom’s one-off discount for more than 20 million subscribers, which weighed on the index in August. The telecom company temporarily cut fees as a show of contrition after a major data breach. Communication costs rebounded in September, rising 15.4 per cent from a month ago.
Other factors pointed to underlying inflationary pressure. Food and non-alcoholic beverage prices climbed 3.3 per cent in September from a year earlier, while housing and utilities costs rose 1.2 per cent. Education prices edged 2 per cent higher.
“Inflationary pressures from the termination of the temporary cuts in mobile and electricity charges may have outweighed deflationary pressures from a fall in summer holiday-related personal service item prices,” Citigroup economist Jin-Wook Kim wrote in a note this week.
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The figures come as policymakers debate the case for more economic stimulus to cushion the economy from US President Donald Trump’s tariff campaign. So far exports have largely shown resilience despite trade headwinds. While some of that strength is owing to front-loading efforts to get ahead of tariffs, investor confidence has stayed high on the back of domestic policy reforms and hopes for monetary easing in the US.
The benchmark Kospi index remains close to the record intraday high it set last week, and consumer sentiment has stayed well above the neutral 100 level for five consecutive months.
The BOK next sets policy on Oct 23. Authorities kept the key rate at 2.5 per cent in August and signalled caution regarding further easing as they remain focused on financial imbalances stemming from a heated housing market and rising mortgage debt. At the same time, after that meeting, governor Rhee Chang Yong said five of six board members were open to a rate cut at some point over the next three months.
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BOK board member Hwang Kunil said last week that any rate cut will depend on whether risks from household debt, property markets and currency volatility can be contained. For now, he emphasised caution, suggesting that safeguarding stability takes precedence over rushing to support growth.
A continued rebound in weekly Seoul apartment prices and asymmetric depreciation risks for the Korean won prompted Citi to delay its forecast for the BOK’s next rate cut to November, according to Citi’s Kim.
Prices for apartments in Seoul rose for a 34th straight week in the period ended Sep 22, despite government steps aimed at cooling the market. The won is almost 5 per cent higher versus the US dollar this year, but those gains lag the performances of more than a dozen other major currencies. BLOOMBERG
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