Korea: Inflation reaches over-five-year high in July
August 1, 2017
Consumer prices rose 0.2% in July compared to the previous month. The result, which contrasted the 0.1% decrease recorded in June, was mainly driven by higher prices for food and non-alcoholic beverages, communication, and recreation and culture services. However, these increases were partly offset by lower prices for clothing and footwear, and furnishings, household equipment and routine maintenance.
Inflation jumped up from 1.9% in June to 2.2% in July, which was the highest print in over five years. The reading was marginally above the Bank of Korea’s 2.0% inflation target and came in above market expectations of inflation at 2.1%. The figure was largely driven by increased prices for fresh vegetables and electricity. Vegetable prices increased significantly following poor weather conditions that damaged agricultural output, while prices for electricity rose as a result of a base effect following the electricity price cut last summer.
Core inflation, which excludes fresh food and energy prices, was unchanged in July at June’s 1.5%. Annual average inflation increased to 1.7% in July from 1.5% in June, which was the highest figure in over four years.
With price pressures largely stemming from one-off events and thus 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: Lindsey Ice, Economist