Korea’s inflation at 6-month low in further relief to BOK

South Korea’s headline inflation dropped for a third straight month to a six-month low on declining oil prices, adding relief to the central bank that hinted its policy rate may have peaked, although the government has warned of a possible rebound in coming months.

Consumer prices rose 2.8% in January from a year earlier, their slowest pace since July 2023, government data showed on Friday. January's figure shows continued easing from 3.2% in December last year, 3.3% in November and 3.8% in October.

Petroleum costs skidded 5% in January on-year after sliding 2.5% in the previous month, dragging down overall inflation.

Annual core inflation, which excludes volatile food and energy prices, fell for three months in a row to 2.5%, the lowest since December 2021, indicating price pressure in Asia’s fourth-largest economy continued to ease.

The government expected headline inflation to rebound this month and the next as oil prices are set to rise, however.

“Inflation could rise to around 3% in February and March as global oil prices recently rebounded to about $80 (per barrel),” Finance Minister Choi Sang-mok said in a meeting with other ministers after the consumer price data was released.

Choi pledged to keep consumer inflation below 3%.

South Korea’s consumer inflation

Unit: %, year-on-year

Graphics by Sunny Park

Source: Statistics Korea

NOT LOW ENOUGH FOR NEAR-TERM RATE CUT

The government expected consumer inflation to slow to 2.6% in 2024 from 3.6% last year on lower global commodity prices and weaker demand-side pressure in an economic policy report released on Jan. 4. In the first half, however, headline inflation was likely to stay around 3% due to geopolitical risks and weather conditions, according to the government.

January inflation data is unlikely to prompt the Bank of Korea to consider a near-term interest rate cut, analysts said.

“Today’s slower-than-expected inflation probably won’t change the BOK’s hawkish stance any time soon,” ING said in a note, adding analysts had forecast 2.9%.

“Choppy inflation ahead is expected. The BOK will likely take a wait-and-see approach to gather more evidence about the continued cooling of inflation.”

The central bank last month hinted its policy rate may have peaked after leaving the rate unchanged at 3.5% for the eighth straight meeting but refrained from signaling any imminent dovish policy pivot amid lingering concerns about the country’s high household debt levels.

Write to Kyung-Min Kang at kkm1026@hankyung.com
 



Jongwoo Cheon edited this article.