Falling prices: People walk outside a train station in Seoul. The pace of consumer price growth is expected to inch back up to around 2% towards the end of 2024, the central bank says. — AFP
SEOUL: South Korea’s inflation decelerated to the slowest pace since early 2021, prompting the central bank to welcome the cooling as a sign of firming price stability as it signalled it remained wary of risks ranging from the US election to foreign exchange rates.
South Korea’s consumer prices advanced 1.3% in October from a year earlier, moderating from a 1.6% clip in September and easing for a third straight month, the statistics office reported yesterday. Economists surveyed by Bloomberg had forecast the pace of price growth would be 1.4%.
The Finance Ministry in a statement welcomed the number as a sign that the downward trend in inflation is firming. It attributed the cooling to falling prices for oil and agricultural products, in particular.
The Bank of Korea (BoK) provided a similar assessment even as it also warned that inflation could pick up somewhat again as oil prices henceforth will be compared with a lower base last year.
The pace of consumer price growth is expected to inch back up to around 2% towards the end of 2024, it said in a statement.
The latest data came just ahead of the US election, an event that could have implications for South Korea’s trade-dependent economy as Donald Trump and Kamala Harris spar over trade policy.
While the latest inflation number turned out as expected, the aftermath of the race will overshadow South Korea’s outlook and could prompt the central bank to cut faster than expected, said Lee Jung-hoon, an economist at Eugene Investment & Securities Co.
The BoK said it would provide its latest price and growth outlook later this month in numbers incorporating the outcome of the US election, South Korea’s consumption recovery and oil-price and currency movements.
The won has been among the worst-performing currencies in Asia this year.
Last month the bank conducted a policy pivot by cutting the benchmark interest rate by 25 basis points to 3.25%.
That decision was supported by moderating inflation, which slipped below the central bank’s 2% target, and cooling Seoul property prices.
The BoK, nonetheless, looks to hold its rate unchanged when it meets on Nov 28, most economists said, with policymakers seeking to assess the impact of the October move as they stay wary for any signs the housing market might heat up again.
“The BoK is likely to remain cautious given prospects for inflation to rebound in the coming months on reduced fuel tax cuts and an increase in industrial electricity rates,” Bloomberg economist Hyosung Kwon said.
“It probably also wants more time to assess how its October rate cut is impacting home prices in Seoul, household debt and the won.”
A cooling export rally has added uncertainties to South Korea’s growth outlook in recent weeks, which comes on top of weak private spending and lingering credit risks in the construction industry.
Risks stemming from the US election this week and the Middle East conflict also are weighing on economic sentiment.
Those factors have bolstered the case for the central bank to accelerate its easing cycle next year.
How global central banks like the Federal Reserve proceed along their own paths toward policy easing in coming months will influence the BoK’s rate trajectory.
Consumer prices rose sharply after governments around the world provided economic stimulus to shore up their economies during the coronavirus pandemic.
Having ratcheted rates higher to tame inflation that resulted from the stimulus, many central banks shifted to easing cycles this year after price growth slowed.
In another sign that inflationary pressure has been reined in, South Korea’s prices excluding energy and foods rose 1.8% from a year earlier in October, slowing from a 2% pace in September, according to yesterday’s data. — Bloomberg
