Korea Inflation May 2017

Korea

Korea: Inflation hits Bank of Korea's target in May

June 1, 2017

Consumer prices rose 0.1% in May compared to the previous month, which contrasted a 0.1% decrease in April and marked the lowest reading in five months. The result was mainly driven by higher prices for clothing and footwear, housing, water, electricity, gas and other fuels, and household equipment. These increases, however, were partially offset by lower food and non-alcoholic beverages prices.

Inflation edged up from 1.9% in April to 2.0% in May, matching the Bank of Korea’s inflation target. The result came slightly above market expectations of steady inflation at 1.9% and was largely driven by higher prices of agricultural products and a beneficial base effect from energy prices. Despite the uptick, our panel overwhelmingly expects the Central Bank to maintain its current monetary policy stance despite the U.S. Federal Reserve’s interest rate normalization, given the new government’s concern over household debt and feeble demand-pull inflationary pressures.

Annual average inflation hit 1.5% in May, up from April’s 1.4% and the highest figure in over three years. Meanwhile, core inflation, which excludes fresh food and energy prices, edged up to 1.4% in May from 1.3% in April. Annual average core inflation was stable at April’s 1.5% in May.

The Bank of Korea expects inflation to average 1.9% in both 2017 and 2018. FocusEconomics Consensus Forecast panelists expect inflation to remain buoyed during the first three quarters of the year on the back of higher food and energy prices as well as a favorable base effect before easing in the last quarter of the year. They expect it to average 1.7% in 2017, which is up 0.1 percentage points from last month’s forecast. In 2018, the panel expects inflation to average 1.8%.


Author:, Economist

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Korea Inflation May 2017

Note: Month-on-month and year-on-year changes of consumer price index in %.
Source: National Statistics Office of Korea (KOSTAT)


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