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Korea Inflation May 2023

Korea: Inflation falls to over one-year low in May

Inflation came in at 3.3% in May, which was down from April’s 3.7%. May’s reading marked the weakest inflation rate since October 2021 and slightly undershot market expectations. Fuel prices declined for the fourth consecutive month, amid the recent decline in energy commodity prices and the high base effect created by surging prices last year.

Annual average inflation ticked down to 5.0% in May (April: 5.2%). Meanwhile, core inflation edged down slightly to 3.9% in May, from the previous month’s 4.0%.

Finally, consumer prices rose 0.30% over the previous month in May, accelerating from April’s 0.22% increase. May’s uptick was the sharpest increase in prices since January.

Inflation is set to continue easing ahead this year, with aid from a tougher base effect; commodity prices surged in Q2 and Q3 last year after Russia invaded Ukraine, and are currently down steeply year on year. An upside risk is posed by sticky core inflation, which only declined slightly in May after having been frozen at 4.0% for the prior three months.

ING’s Min Joo Kang said:

“We think that even if headline inflation hits the 2% range in June or July, the Bank of Korea (BoK) will likely maintain its hawkish stance by highlighting that core inflation is still [elevated] and by projecting headline inflation will hit the 3% level by year-end. We also think that risks are skewed to the upside because public service fees – usually decided by local governments – are set to increase over the summer and the second-round effects of such hikes could push prices back up. However, if global oil prices run below $70 per barrel, then the deceleration trend will likely continue. We maintain our long-standing view that the BoK will stay pat throughout the third quarter.”

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