Korea’s Inflation Rate in December Highest in 16 Months

South Korea’s annual inflation rate accelerated above expectations in December to its highest in 16 months as demand for services rose amid a recovery in consumption, government data showed on Thursday.

The consumer price index rose 1.3 percent in December from a year earlier, Statistics Korea said, up from a 1.0 percent increase in November. It was the fastest rise since a 1.4 percent gain in August 2014.

The CPI increase was higher than the median 1.1 percent projected in a Reuters survey.

 
 

“Services inflation is steadily rising. Demand-side pressures seem to be recovering but we still need more time to determine the trend,” said a finance ministry official to Reuters.

Thursday’s data showed the consumer index for services rose 2.3 percent in December on-year, the fastest gain since February 2012.

The ministry official also said inflation had risen on higher agricultural product prices due to heavy rains and the fading effects of low global oil prices.

 
 

The Bank of Korea has a policy meeting on Jan. 14.

The current base rate is 1.50 percent after the BOK cut interest rates four times between August 2014 and June 2015. A slim majority of analysts see no change for a prolonged period.

Some analysts expect another interest rate cut soon, and Park Sang-hyun, chief economist at HI Investment & Securities, said the higher inflation is unlikely to change those views.

“It’s too early to say whether the Bank of Korea will act on today’s data alone,” Park added. “However, there are chances of further easing after industrial output data out Wednesday was weaker than expected.” .

Government data showed November industrial output was weaker than expected as exports hobbled factory activity, while services remained the only bright spot in the data.

On a monthly basis, overall inflation rose 0.3 percent in December, compared with a 0.1 percent decline in November.

Core inflation, which strips out volatile food and fuel prices, rose 2.4 percent in December in annual terms, as it did in November.

For the whole year, inflation was 0.7 percent, easing considerably from a 1.3 percent rate in 2014 and matching the central bank’s forecast made in October.

The BOK’s new annual inflation target, which will be valid for three years starting Friday, is 2.0 percent.

REUTERS
By Christine Kim
Additional reporting by Shin-hyung Lee and Yeonsoo Kwak; Editing by Richard Borsuk)

Related