December 6, 2022

The governor of the central bank foresaw a slowdown in inflation in South Korea in November, but underlying price pressures remained high, indicating that more policy tightening was still to come.

According to statistics office data, consumer prices increased 5% compared to a year earlier, slipping from October’s 5.7% rate and falling short of the economists’ projection of 5.2%. Prices dropped 0.1% from the previous month, which was also less than anticipated.

Core inflation, which does not include volatile goods like oil and agricultural products, remained at 4.8% in November compared to the same month the previous year, exceeding the median estimate of 4.5%.

This maintains the concerns of the central bank, according to Lim Dong-min, a researcher at Kyobo Securities. “The BOK continues to believe that even though it might put pressure on the economy in the short term, demand should cool to push prices down.”

Rhee Chang-yong, the governor of the Bank of Korea, gave a warning last week that headline inflation was likely to fall in November since the cost of agricultural items had increased the year before as a result of a cold snap. He didn’t think the impact would last.

In a statement released after the release of today’s report, the central bank reaffirmed this opinion by citing the base effect and reiterating its expectation for a 5% increase in consumer prices through the beginning of 2019.

The comments indicate that the BOK, which has increased rates by 2.75 percentage points since August of last year, is likely to continue to tighten.

In response to the Federal Reserve’s disproportionate rate increases, the Korean won fell below 1,400 per dollar in September and October, raising the price of imports. Since then, the won has recovered as a downshift by the Fed has been hinted at.

Inflation will be a major consideration when the BOK meets again in January. As policymakers in Seoul work to wind down their tightening cycle and plan their next move, it will also be keeping an eye on Fed actions and China’s Covid stance.

Source: Bloomberg
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