Korea: Inflation comes in at highest level since November 1998 in July
Consumer prices rose 0.48% in July over the previous month, which was below June’s 0.61% rise. Looking at the details of the release, prices for housing and utilities remained flat in July, while prices for food and non-alcoholic beverages picked up pace.
Inflation inched up to 6.3% in July, following June’s 6.0%. July’s reading represented the highest inflation rate since November 1998. The reading was broadly in line with market expectations and moved further above the Bank of Korea’s 2.0% inflation target. Annual average inflation rose to 4.1% in July (June: 3.8%). Finally, core inflation was steady, coming in at June’s 3.9% in July.
Stable core inflation, coupled with a softer month-on-month CPI increase, could be early signs of easing price pressures resulting from a slowdown in demand, which would be consistent with July’s PMI release. Inflation is expected to decelerate towards the end of the year amid further tightening expected from the BOK.
Analysts from Nomura commented:
“With oil prices moderating, we expect inflation to peak in Q3, as the effects of electricity price hikes should fade over time, while potential service price gains appear limited, as consumers are likely to cut back on spending in response to higher interest rates. […] The balance of risks to our inflation forecast is tilted slightly to the downside, with oil prices stabilizing and consumption moderating. However, rising agricultural prices remain an upside risk to the near-term inflation outlook.”