South Korea inflation picks up less than expected in sign of stability
THE pace of South Korea’s consumer inflation picked up less than expected and stayed below the central bank’s target for a third month, in a sign of price stability.
Consumer prices advanced 1.5 per cent in November from a year earlier, accelerating from a 1.3 per cent clip in October, the statistics office reported on Tuesday (Dec 3). Economists surveyed by Bloomberg had forecast the pace of price growth would rise to 1.7 per cent.
The latest data came after the Bank of Korea (BOK) conducted back-to-back interest-rate cuts in the last two months, as authorities quickly adjusted the focus of policy to safeguard economic momentum. Policymakers are concerned economic growth may be sputtering after gross domestic product grew less than expected in the third quarter. Donald Trump’s return to the White House next month may create headwinds for the trade-reliant South Korean economy in the form of tariffs and other measures.
“A strong US dollar as a result of trade tensions could impact South Korea’s currency and, subsequently, inflation next year,” said KB Securities economist Gweon Heejin, who expects the BOK to cut its rate twice in the first half of 2025.
The BOK sees the economy slowing to a growth pace of 1.9 per cent next year from 2.2 per cent this year, suggesting a moderation of export momentum. At last week’s board meeting, BOK officials also cut the inflation outlook for next year to 1.9 per cent, a revision of 20 basis points from their August view.
Economists see weak private spending, a cooling export rally and lingering credit risks in construction as factors that may spur the BOK to accelerate its easing campaign next year. How global central banks such as the US Federal Reserve manoeuvre their own policies in the coming months will also influence BOK decisions.
Consumer prices rose sharply after the government undertook stimulus to shore up growth during the coronavirus pandemic. Many central banks are now feeling confident enough to loosen their restrictive policies after their rate hikes helped tame inflationary pressure. The latest figure has been partly skewed by a lower base last year when the growth in consumer prices slew by 50 basis points to 3.3 per cent from a prior month. A reduction in fuel tax cuts might have affected the November reading as well.
Consumer prices excluding energy and food rose 1.9 per cent from a year earlier in November, which indicates underlying inflationary pressure remains largely under control even as it picked up a tad from 1.8 per cent in October.
A cost-of-living index increased 1.6 per cent from a year earlier, accelerating from 1.2 per cent in the prior month, according to Statistics Korea. A separate price index for fresh foods edged up 0.4 per cent in November, compared with 1.6 per cent growth in October, the data showed. Utility costs associated with electricity, gas and water rose 3 per cent, maintaining the same pace for three months in a row.
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