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.”
