South Korea’s inflation slows but tightening bias seen intact

A giant inflatable Rubber Duck installation by Dutch artist Florentijn Hoffman floats on Seokchon Lake in Seoul, South Korea, September 30, 2022. REUTERS/Heo Ran

SEOUL: South Korea’s consumer inflation slowed for a second month in September, data shows, but economists say it would do little to change the central bank’s tightening bias amid growing talk that it could opt for a bigger hike next week.

Economists said the latest data suggested inflation was at or past its peak, but they expected the central bank to stick to its stance given the weakening won and an aggressive monetary policy in the United States.

The consumer price index (CPI) rose 5.6% in September from the same month a year ago, according to Statistics Korea data, slowing for the second straight month. In August, inflation cooled to 5.7%, the first slowdown in seven months.

The aggressive tightening stance by the US Federal Reserve has raised economists’ expectations that the Bank of Korea (BoK) could raise the policy interest rate by a bigger-than-usual 50 basis points next week for the second time on record.

“I think overall inflation pressures have already past their peak in South Korea, but the BoK is not making policy decisions only on inflation numbers, but has to consider US policy and the foreign exchange rate,” said Moon Hong-cheol, economist at DB Financial Investment.

September’s annual rate of growth in the CPI was the slowest in four months and slightly below economists’ median forecast of 5.7%, although predictions ranged widely.

The BoK has raised its policy interest rate by a total of two percentage points since August last year from a record-low of 0.5% to fight inflation, and governor Rhee Chang-yong has said its tightening stance would continue for the time being.

The BoK, which next meets on Oct 12, affirmed at an internal meeting yesterday its previous view that inflation prospects were uncertain, listing the won and global oil prices as the main possible drivers of future inflation.

The won’s steep fall has raised concerns about possible capital flight and rising import prices. The currency has weakened by 16% against the US dollar so far this year. — Reuters

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