South Korea’s inflation slowed for a third straight month in April, providing more evidence for the central bank that price pressures are easing and creating room for a pivot toward interest rate cuts.
(Bloomberg) — South Korea’s inflation slowed for a third straight month in April, providing more evidence for the central bank that price pressures are easing and creating room for a pivot toward interest rate cuts.
Consumer prices advanced 3.7% last month from the prior-year period, in-line with economist estimates and matching the slowest pace since January 2022, according to data from the statistics office Tuesday. Core inflation, which excludes more volatile oil and agricultural prices, rose 4.6% from a year ago after climbing 4.8% in March.
The figures, combined with economic growth data showing the economy avoided a recession in the first quarter, should provide the Bank of Korea with more flexibility to shift policy later this year. Swap markets are currently pricing in at least two rate cuts in the next two years, and analysts are anticipating the first reduction to come as early as this year.
Policymakers held interest rates for a second straight meeting in April, noting risks to the economy including slower global demand. Governor Rhee Chang-yong has previously ruled out the possibility of an interest rate cut before inflation showed clear signs of easing.
Despite April’s slowdown, the trajectory of prices depends largely on the extent of rising public-service costs and future demand from China as the country reopens. Russia’s ongoing war in Ukraine and plans for OPEC+ to cut oil production also pose risks for prices.
The central bank said last month headline inflation will likely be in line with its February projection of 3.5% this year, while core inflation may be slightly above its previous forecasts. The central bank is set to recalibrate inflation projections in May.
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