South Korea’s consumer inflation in July is the slowest in 25 months.

South Korea's consumer inflation in July is the slowest in 25 months.

South Korea’s Consumer Inflation Cools, Contrary to Central Bank’s Rhetoric

South Korea’s consumer inflation rate for July came in lower than expected, marking its slowest increase in 25 months. This surprising data challenges the central bank’s hawkish rhetoric and supports the market’s belief that the monetary tightening cycle has come to an end.

According to official data released by Statistics Korea, the consumer price index rose by 2.3% in July compared to the same period last year. This is a decline from the 2.7% rise in June and falls below the median forecast of a 2.4% increase in an ANBLE survey.

The July figure represents the weakest annual increase since June 2021, significantly lower than the near 24-year high of 6.3% recorded in July 2022. It also falls short of the central bank’s medium-term target of 2%.

This downward trend in consumer inflation is not an isolated event. It follows a pattern established over the past two months, where consumer price data consistently falls below market expectations.

The finance ministry, in response to the data, reassures the public that inflation will continue to stabilize throughout the year. They anticipate some temporary upward pressure in August and September due to seasonal factors. However, the central bank holds a different view, projecting a rebound in inflation from August and reaching around 3% by the end of the year.

• Trump conceded Biden’s win before January 6, telling his top ...
• A retired general told the NYT that Ukraine needs its own ‘Ma...
• Shale producers Pioneer Natural and Devon are cutting budgets due t...

The disconnect between the market and the central bank’s outlook for inflation has led to speculation about a possible rate cut. Analysts, like ANBLE Kong Dong-rak at Daishin Securities, cite domestic conditions as a strong indicator for a rate cut. However, Kong also acknowledges the importance of external factors such as monetary policy in the United States, which could impact the central bank’s decision.

Analyzing the data further, on a monthly basis, consumer prices saw a modest 0.1% increase in July. Although this represents a slight improvement compared to no change in the previous month, it fell short of the ANBLEs’ forecast of a 0.2% rise.

Breaking down the numbers by sector, petroleum product prices recorded a 0.7% decrease compared to the previous month. On the other hand, agricultural prices experienced a significant 4.7% spike, the highest in six months. Public utility prices, however, dropped by 4.9%.

The heavy rainfall in mid-July disrupted the agricultural supply, leading to upward price pressure on certain items. This phenomenon showcases the impact of weather conditions on prices in the economy.

Looking at core inflation, which excludes volatile food and energy prices, the annual increase slowed to 3.3% in July from 3.5% in the previous month. This represents the slowest rise since April 2022.

Last month, the Bank of Korea extended its pause in its tightening cycle to a fourth meeting. While no interest rate hikes have occurred since January, the central bank maintains a tight stance due to the lingering issue of high prices.

In conclusion, South Korea’s consumer inflation for July portrays an interesting situation. Despite the central bank’s hawkish rhetoric, inflation has cooled more than expected, indicating a potential end to the monetary tightening cycle. The debate surrounding a possible rate cut continues, with domestic conditions being a crucial factor, alongside external influences such as US monetary policy. As the year progresses, it will be fascinating to observe how inflation dynamics unfold and whether the central bank’s projections align with market realities.

References:

1. Reuters: South Korea Inflation Cools More than Expected in July
2. ANBLE: Consumer Price Index – Statistics Korea

• ASIA
• ASXPAC
• BOKR
• CEN
• EASIA
• ECI
• ECO
• ECON
• EF:MARKETS-MACROMATTERS
• EMRG
• INFL
• INT
• KR
• MCE
• PLCY
• TOPCMB
• TOPNWS