South Korea July consumer inflation slowest in 25 months

An office worker eats his lunch at a convenience store in Seoul, South Korea. REUTERS/ Heo Ran/File photo

SEOUL  -South Korea’s consumer inflation cooled more than expected in July to its slowest in 25 months, official data showed on Wednesday, supporting market views that the monetary tightening cycle was over contrary to the central bank’s hawkish rhetoric.

The consumer price index stood 2.3 percent higher in July than a year earlier, after a 2.7- percent rise in June and compared with a median 2.4 percent increase forecast in a Reuters survey of economists.

It marked the weakest annual increase since June 2021, according to Statistics Korea, and compared with a near 24-year high of 6.3 percent in July 2022 and the central bank’s medium-term target of 2 percent.

It was also the second consecutive month the consumer price data came in lower than market expectations.

The finance ministry said after the data release inflation would continue to stabilize this year, after temporary upward pressure in August and September from seasonal factors, but the central bank said it would rebound from August to around 3 percent by the end of the year.

“Considering domestic conditions, anyone in the financial market cannot help but expect a rate cut by the central bank,” said economist Kong Dong-rak at Daishin Securities.

“But, there are other factors that need to be taken into consideration,” Kong added, citing monetary policy in the United States.

On a monthly basis, consumer prices rose 0.1 percent, picking up from no change the previous month, but weaker than a 0.2- percent rise expected by economists.

Broken down by sector, prices of petroleum products were 0.7 percent lower than the month before, but agricultural prices jumped 4.7 percent, the most in six months, while public utility prices dropped 4.9 percent.

There was heavy rain in mid July, disrupting agricultural supply and causing upward price pressure on some items.

Core inflation, which excludes volatile food and energy prices, slowed to 3.3 percent on an annual basis from 3.5 percent the previous month, the slowest rise since April 2022.

Last month, the Bank of Korea extended its pause in its tightening cycle to a fourth meeting, after the last interest rate hike in January, but said it would maintain a tight stance amid still-high prices.