Korea inflation at 7-mth low; BOK may slow rate hike pace

South Korea’s headline inflation hit a seven-month low in November as rises in agricultural and petroleum product prices slowed, adding to expectations that the central bank is likely to moderate its interest rate hike pace on a slowdown in Asia’s fourth-largest economy.

Consumer prices rose 5.0% last month from a year earlier, the lowest since April, government data showed on Friday. That compared with 5.7% in October and 5.6% in September.

Agricultural product prices fell 2.0% in November on-year due to improving supply conditions after a 5.2% increase in the previous month, while growth in petroleum product costs nearly halved to 5.6% from 10.7%, the finance ministry said in a statement.

But annual core inflation, which excludes those prices, stood at 4.8% last month, unchanged from October, the fastest level since February 2009, indicating inflationary pressure in the local economy persists.

GROWTH, INFLATION TO SOFTEN

The Bank of Korea said inflation is likely to stay around the 5% level until early next year, noting the slowdown in November was due to high base effects.

Given the expectation, the BOK may raise interest rates further, but at a slower pace, analysts said.

“Today's lower-than-expected inflation is unlikely to change the BOK's policy stance… We expect the BOK to stay on a hiking path until early next year,” said Min Joo Kang, a senior economist at ING in a note, adding a market consensus for November inflation was 5.2%.

The central bank is expected to raise its policy interest rate by 25 basis points in February 2023 and take a pause until the second quarter as the economy is slowing down and inflation will likely soften further, Kang said. Last week, the BOK raised its policy interest rate by 25 bps to 3.25%, slowing its tightening pace after a 50-bp increase in October. 

Exports reported a decline for a second straight month in November as overseas sales of semiconductors, the country’s key products, lost ground. The economy grew at the slowest pace in one year during the third quarter.

US Federal Reserve Chairman Jerome Powell earlier this week suggested a slowdown in its tightening, providing room for the BOK to moderate its rate hike pace, analysts said.

Write to Byung-Uk Do at dodo@hankyung.com
Jongwoo Cheon edited this article.