South Korea: Inflation remains above the BoK target – UOB

Economist at UOB Group Ho Woei Chen, CFA, reviews the latest inflation figures in South Korea.

Key Quotes

“In line with consensus forecast, South Korea’s inflation edged higher to 2.6% y/y in May from 2.3% y/y in April (Bloomberg est 2.6%). This is the second straight month that the inflation is above the Bank of Korea’s (BOK) 2% inflation target.”

“A low base of comparison (CPI was negative in May 2020) and higher fuel costs including gasoline and diesel were the main drivers of the higher inflation. Transport costs picked up to 9.2% y/y in May from 6.4% y/y in April but food prices rose at a more moderate 7.8% y/y compared to April’s 8.6% y/y.”

“Meanwhile, core inflation (excluding agricultural products & oils) rose to 1.5% y/y from 1.4% in April, supported by improving domestic demand. On a month-on-month comparison, the headline and core CPI rose 0.1% and 0.3% respectively.”

“The Bank of Korea (BOK) has upped its inflation forecast for 2021 to 1.8% from 1.3% at its recent update in May. We expect some upside risk to our forecast of 1.7% for 2021 as inflation is likely to hover around or slightly above 2% for the rest of the year. Nonetheless, BOK does not appear particularly concerned about the inflation trajectory as they expect inflation to moderate to 1.4% in 2022.”