South Korea’s inflation eased for a fourth straight month in May, an early indication that price pressures are pulling back and giving the central bank scope to maintain its interest rate pause.
(Bloomberg) — South Korea’s inflation eased for a fourth straight month in May, an early indication that price pressures are pulling back and giving the central bank scope to maintain its interest rate pause.
Consumer prices advanced 3.3% in May from the prior year, the smallest advance since October 2021, according to data from the statistics office Friday. The figure was below economists’ expectations for a 3.4% rise. Core inflation, which excludes oil and agricultural prices, rose 4.3% in May, also easing from a 4.6% increase in the previous month.
The slowdown in inflation signals that the Bank of Korea’s aggressive pace of interest rate hikes is damping price pressures in a sustained way. The downward trend lessens the need for a near-term interest rate hike from the central bank, which wants to avoid targeting inflation at the expense of denting an economy that’s increasingly vulnerable.
The Bank of Korea has one more reading on consumer prices before a July meeting to set rate policy, where they have room to hold interest rates for a fourth straight session.
South Korea’s economy has been weighed down by a drop in demand for goods from China, particularly for chips and other tech parts. A surge in semiconductor inventory has also put a cap on shipments. Future economic growth depends largely on a faster rebound in China and a bounce back in that demand.
Bank of Korea Governor Rhee Chang-yong has said the central bank needs to see a sustained decline in inflation to start considering a shift in policy toward stimulating the economy.
The Bank of Korea kept its policy rate on hold for a third meeting in May, citing the need to combat sticky inflation while monitoring economic developments. Governor Rhee kept alive the possibility for a rate increase should prices keep rising, while drawing a line against any rate cut discussions.
–With assistance from Myungshin Cho.
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