South Korea’s inflation rate turns higher for first time in 3 months in July

South Korea's headline inflation edged up for the first time in three months in July amid signs of a recovery in consumer sentiment, but still remained well below the central bank's 2% annual target.

The benchmark consumer-price index gained 0.3% last month from a year earlier, after being flat in June, according to data released by Statistics Korea on Tuesday.

The July reading comes as coronavirus pandemic-induced business lockdowns still weighed on price growth.

Compared with the prior month, the index remained flat in July, following the previous month's 0.2% increase.

The rise in consumer prices supports the view that an economic turnaround from the virus slump is under way, helped by aggressive government spending. Still, inflation is far below levels seen earlier this year as uncertainty surrounding the coronavirus lingers.

Core inflation, which strips out volatile agricultural and petroleum products, gained 0.7% from a year ago in July.

South Korea's consumer prices had risen at less than 1% for 12 consecutive months before growing 1.5% in January.

Mild inflation may give the Bank of Korea more room to keep its monetary policy steady.

In May, the BOK slashed its policy rate by a quarter-percentage point to a record low of 0.5% as the nation's economy is expected to grow at the slowest pace in over two decades amid the pandemic.

In its latest rate decision in July, the central bank maintained its policy rate at 0.5%, citing the slowing economy and the overheated housing market.

BOK Governor Juyeol Lee said the bank’s monetary policy will remain accommodative until the economy recovers.

He also said the Korean economy would underperform its May projection of a 0.2% contraction this year, following the double-digit declines in exports in May and June.

The country saw exports fall 7% in July, extending their slump to a fifth consecutive month.

The central bank expects inflation to average 0.3% this year, compared with a record low of 0.4% in 2019.

Inflation averaged 1.5% in 2018.

By Min-Jun Sun

morandol@hankyung.com