South Korea’s outlook for the central bank to cut interest rates to boost economic growth is clouded. The reason is that consumer inflation has cooled down for the fourth month. Which hit the lowest in 19 months in May, but core inflation is still elevated.
Last Friday, the Statics Korea data was released. The consumer price index increased by 3.3% in May. Compared to last year in the same month, which was slower than the 3.7% increase observed in April.
Till October 2021, it was the slowest rise, and later in July 2022, it hit a near 24-year high of 6.3%. The run of gains continued in the sixth consecutive month too, as the CPI hiked by 0.3% in May, followed by the 0.2% increase in April.
After the data was released, the finance ministry said inflation would continue to stabilize. The central bank said that due to the high risk of an increase in the prices of global oil and public utilities, along with the risk of economic growth, the inflation outlook was highly uncertain.
However, utility prices hiked by 2.2% and agricultural prices hiked by 0.5% in May. Whereas petroleum products declined by 1.4%, which dragged the annual rate lower.
Fixed income analyst at Shinhan Securities, Ahn Jae-kyun, said, “Core inflation is starting to soften, but it is still at high levels and will not cause any meaningful change in the central bank’s policy stance that is trying to keep interest rates at restrictive levels.”
The interest rates are kept unchanged for the third straight meeting, and the projections are lowered for this year’s economic growth. Still, the Bank of Korea flagged that they are not finished tightening.
The core CPI rose by 3.9% in May, which is considered to be the slowest rise in 10 months. However, for the second straight month, the core CPI stood above the headline rate, followed by an increase of 4.0% in the previous months.
