South Korea inflation softens to one-year low, outlook murky

9:37 pm Monday, April 03rd, 2023

By Jihoon Lee

SEOUL (Reuters) – South Korea’s consumer inflation eased to a one-year low in March, led by weaker oil prices, but a range of issues including worries about global growth, monetary policy and decisions by major oil producers have clouded the outlook.

The consumer price index was 4.2% higher in March than a year earlier, compared with gains of 4.8% in February and a 4.3% forecast in a Reuters survey. It was the slowest annual rise since March 2022.

The index rose 0.2% on a monthly basis, after a 0.3% gain in the previous month, according to the Statistics Korea. It matched economists’ expectation for a 0.2% rise.

The softening comes as worries about the global banking sector and local economic prospects have prompted investors to increase their bets that the South Korean central bank’s tightening cycle is over.

The Bank of Korea (BOK) said after the data release that inflation is likely to ease further, but remain higher than the central bank’s 2% target throughout the year, while core inflation would cool at a slower pace.

The BOK said there was heightened uncertainty over global energy prices, world and domestic economic trends, and public cost increases.

Saudi Arabia and other OPEC+ oil producers on Sunday announced further oil output cuts of around 1.16 million barrels per day, catching markets offguard and sharply lifting prices.

“It is definitely a variable, which may cause downward rigidity in oil prices,” said economist Oh Chang-sob at Hyundai Motor Securities.

Overall, slowing global growth, a delay in public utility price increases and the surprise weekend decision by OPEC+ to cut oil production have added to broader uncertainty around the economy and inflation.

A breakdown of the Tuesday’s data showed prices of petroleum products were 14.2% lower in March than a year before, contributing to the slower inflation. Livestock products also fell 1.5%.

The data comes a week before the April 11 policy meeting of the Bank of Korea, whose pause in late February after a year of successive interest rate hikes was widely taken as suggesting the end of its tightening cycle.

(Reporting by Jihoon Lee; Editing by Choonsik Yoo, Tom Hogue and Shri Navaratnam)