Korea: Inflation increases in April
Consumer prices increased 0.74% from the previous month in April, largely in line with March’s 0.72% rise. April’s uptick was the highest reading since September 2018. The increase was largely driven by rising prices for housing and utilities. In addition, price pressures for food and non-alcoholic beverages rebounded.
Inflation came in at 4.8% in April, up from March’s 4.1%. April’s result marked the highest inflation rate since October 2008. Annual average inflation rose to 3.3% in April (March: 3.1%). Lastly, core inflation rose to 3.1% in April, from March’s 2.9%.
Inflation is likely to increase further in the coming months due to planned increases in utility bills and the boost to domestic demand coming from a reopening of the services sector. That said, inflation should moderate toward the end of this year. Prices for global energy commodities should ease and the government’s fuel tax cut kicked in this month, lasting until August. Moreover, rent prices should ease: Rising mortgage rates should dampen housing demand.
April’s reading led a number of our panelists to upgrade their forecasts for inflation this year.
Analysts at Nomura commented:
“Does this change our view? Yes. We raise our inflation forecasts to 4.5% year-on-year from 3.6% earlier for 2022, and to 2.0% from 1.7% for 2023, reflecting persistently high cost-push inflation. We expect headline inflation to rise above 5% over the summer, deepening concerns over inflation […] However, we expect inflation to return gradually to the BOK’s 2.0% target by Q2 2023, as we see little evidence of demand-pull inflation. We expect the recovery in private consumption to remain weak, which will likely reduce the likelihood of broad-based demand-pull inflation.”