S.Korea’s inflation slows to 10-month low amid tight policy

South Korea’s headline inflation slowed to a 10-month low in May as the Bank of Korea kept its interest rate policy tight, adding to the central bank’s expectations that price pressure in Asia’s fourth-largest economy will ease in the second half.

Consumer prices rose 2.7% last month from a year earlier, the slowest since July 2023, government data showed on Tuesday, lower than the 2.8% market forecast. That compares with 2.9% in April and 3.1% in March and February, respectively.

“Inflation continued to slow after peaking in March,” Finance Minister Choi Sang-mok said in a meeting on inflation with other ministers after the data was released. “It is expected to stabilize in the low-to-mid-2% range in the second half unless we face additional shocks.”

Annual core inflation, which excludes volatile food and energy prices, eased to 2.2%, its lowest since December 2021.

The government said that indicated overall price pressure softened, adding that the country would do its utmost to maintain consumer inflation around 2%.

“The government plans to make all-out efforts to make inflation settle in the 2% range as soon as possible as uncertainties remain such as abnormal weather, volatile international oil prices and rising food prices,” the finance ministry said in a statement.

FURTHER MEASURES

The authorities are set to extend lowered tariffs on 28 types of fruit in the second half and cut the import taxes on more food ingredients to curb inflationary pressure, according to the ministry.

The BOK forecast inflation at 2.6% this year, higher than its long-term target of 2%.

ING said inflation is predicted to fall further to the 1% level from August and September as the government is likely to continue price stabilization measures until the third quarter.

“We believe that the BOK's policy stance will gradually turn dovish in the third quarter as inflation starts to cool and we expect a 25-bp rate cut in October,” ING said in a note.

The BOK said it has grown more uncertain about when to slash interest rates after raising its economic growth forecast to 2.5% from the previous 2.1% last month when it kept its policy interest rate unchanged at 3.50% in a unanimous decision for the 11th straight meeting as widely expected.

Write to Kyung-Min Kang at kkm1026@hankyung.com
 

Jongwoo Cheon edited this article.