Korea: Inflation continues to creep up in August
September 1, 2017
Consumer prices rose 0.6% in August compared to the previous month, the highest figure since January. The result, which came in above the 0.2% increase recorded in July, was mainly driven by a surge in prices of food and non-alcoholic beverages, as well as higher prices for transportation and clothing and footwear.
Inflation jumped up from 2.2% in July to 2.6% in August, which was the highest print in over five years. The reading was well above the Bank of Korea’s 2.0% inflation target and exceeded market expectations of steady inflation. It was largely caused by increased prices for fresh vegetables and electricity. Vegetable prices have soared in recent months following poor weather conditions that damaged agricultural output, while prices for electricity remain elevated as a result of a base effect following a cut in the price of electricity last summer.
Core inflation, which excludes fresh food and energy prices, was unchanged in August from July’s 1.8%. Annual average inflation increased to 1.9% in August from 1.7% in July, the highest figure in over four years.
With price pressures largely stemming from one-off events and therefore not reflective of a general pick-up in demand-side pressures, the Bank is likely to stand pat in upcoming monetary policy meetings, a view that is reinforced by the government’s ongoing concerns over household debt.
Author: David Ampudia, Economist