Korea: Inflation exceeds expectations in August
Inflation rose to 3.4% in August, which was up from July’s 2.3%. The print exceeded market expectations of a 2.9% rise and will likely push the Bank of Korea to keep interest rates steady for the rest of the year. The acceleration was due to a bigger rise in food prices and a smaller decline in transport prices.
Annual average inflation edged down to 4.2% in August (July: 4.4%). Meanwhile, core inflation was stable, coming in at July’s 3.3% in August.
Lastly, consumer prices rose 1.02% from the previous month in August, picking up from July’s 0.07% increase. August’s figure was the sharpest increase in prices since January 2017.
Our panelists expect inflation to decline on average through to December from current levels but remain above the Bank of Korea’s 2.0% target due to sticky core inflation and the recent rise in oil prices. This means the Bank of Korea is likely to keep its policy rate for the rest of the year at 3.50%, which the BOK’s Governor says he considers “restrictive”—a level that will likely dampen economic activity.
Goldman Sachs’ Irene Choi and Goohoon Kwon said:
“In light of the upside surprise in the August report, we are revising up our full-year 2023 and 2024 inflation forecasts by 20bp and 10bp respectively, to 3.4% and 2.5%.”
Nomura’s Jeong Woo Park commented:
“With a weaker KRW [Korean won], and as we expect higher prices for oil and agricultural products to increase near-term price pressures over the next couple of months before inflation slows to below 3% by year-end, we raise our 2023 inflation forecast to 3.4% from 2.9%.”