Korean Inflation Runs at the Fastest Pace in Almost a Year

Cabbage Harvest And Kimchi Production As South Korea Second-Quarter GDP Rises 0.3%

An employee put seasoned kimchi onto a conveyor in South Korea. Korean Inflation Runs at the Fastest Pace in Almost a Year.

Photographer: SeongJoon Cho/Bloomberg
  • CPI increases by 0.9% in October versus 0.7% median in survey
  • Consumer price gauge still trails the central bank's target

South Korean inflation unexpectedly accelerated to the fastest pace in almost a year as domestic consumption and industrial production improved.

The price gains help back the government’s assessment that the economy is in a "turn-around" from the effects of an outbreak of a respiratory illness earlier this year that scared away shoppers and foreign tourists. Consumer confidence and business sentiment have shown signs of picking up, even as the outlook for exports remains uncertain.

The consumer price index rose 0.9 percent in October from a year earlier, after a 0.6 percent advance in September, Statistics Korea said Tuesday. That was the strongest number since November last year and beat the median estimate of 0.7 percent in a Bloomberg survey. The price gauge was unchanged from a month earlier. 

"Improving private consumption is the main driver for the economy and accelerating price gains," said Shin Min Young, a Seoul-based economist at LG Economic Research Institute. "By next year, South Korean inflation should well be above 1 percent."

Asia’s fourth-largest economy expanded 1.2 percent in the three months through September. That was the fastest pace since 2010 and a significant improvement from 0.3 percent in the previous quarter.

"There is upward pressure from livestock and agricultural products," said Woo Young Jae, a director at Statistics Korea said in Sejong, who cited a 12 percent increase in beef prices and a 91 percent jump for onions, from a year ago. "Downward pressure from cheap oil prices will ease from January next year."

Core consumer prices, which excludes oil and agricultural products, rose 2.3 percent from a year ago.

Target range

Despite the pickup in prices in October, inflation is still well below the central bank’s target of 2.5 percent to 3.5 percent, and has been since late 2012.

The BOK said in a report Tuesday it will continue its accommodative policy stance as inflation is expected to remain relatively low as the domestic economy gradually recovers.

The central bank in October cut its estimates for inflation this year and next and left the benchmark interest rate unchanged at a record low 1.5 percent.

It is talking with the government about a new inflation target, to start in 2016, with economists surveyed by Bloomberg projecting the midpoint to be revised to 2.5 percent from the current 3 percent.

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