S Korea inflation slows to 3-1/2-year low, backs case for imminent rate cut

SEOUL :South Korea’s consumer inflation slowed in August to the weakest in nearly 3-1/2 years, official data showed on Tuesday, supporting market expectations for an easing of monetary policy as early as next month.
The consumer price index (CPI) rose 2.0 per cent from a year earlier, after gaining 2.6 per cent the previous month, marking the slowest annual rise since March 2021.
It matched the median 2.0 per cent increase tipped in a Reuters survey of economists and the central bank’s medium-term inflation target of 2 per cent.
“Going forward, unless there is any additional shock from weather conditions or global oil prices, consumer inflation is expected to stabilise in the lower 2 per cent range,” said Vice Finance Minister Kim Beom-seok.
Last month, the Bank of Korea held interest rates steady at their highest in nearly 16 years but revived expectations for a policy easing that some economists see happening as soon as October as growth concerns overshadow inflation worries.
The central bank said Tuesday’s data showed inflation was stabilising more quickly than in other major economies and it expected prices to maintain a stable trend.
“The data supports a rate cut in October, which is seen most likely for now, although it is still not a sure thing due to growing household debt,” said Ahn Jae-kyun, a fixed-income analyst at Shinhan Securities.
South Korea’s treasury bond yields traded slightly down on Tuesday after three straight sessions of gains.
On a monthly basis, CPI was up 0.4 per cent, the fastest in six months, after rising 0.3 per cent the prior month and beating a forecast by economists for 0.3 per cent.
Core CPI, excluding volatile food and energy items, rose 2.1 per cent from a year earlier, slowing from the previous month’s 2.2 per cent rise and marking the weakest since November 2021.