South Korea September Inflation Returns to 2.9%; BOK Says October to Stay Around 3%

"Price pressures broadened after stripping out August base effects"

Rate hold widely expected this month

South Korea’s consumer inflation returned to the 2% range in September. Even so, the Bank of Korea said price pressures actually broadened once base effects were taken into account, and projected inflation to remain elevated at around 3% in October.

According to September consumer price data released by Statistics Korea on October 2, the consumer price index stood at 120.43 last month, up 2.9% from a year earlier. Consumer inflation first entered the 3% range this year in May, at 3.1%, amid the fallout from the Middle East war. It then rose to 3.2% in June, edged down to 2.8% in July, climbed back to 3.1% in August and returned to the 2% range in September.

By category, prices for agricultural, livestock and fishery products fell 0.3% from a year earlier, lowering headline inflation by 0.03 percentage point. Agricultural prices in particular dropped 4% from a year earlier. A Statistics Korea official attributed the bigger decline in fruit prices to increased shipments following strong harvests of apples and pears. The government’s largest-ever discount support program under its Chuseok holiday cost-of-living measures also contributed, the official added.

Petroleum prices jumped 14.8% from a year earlier. The government estimated that September inflation was 0.6 percentage point lower because of the introduction of a maximum price cap on oil products. Without the measure, it estimated, September consumer inflation would have reached 3.5%.

Lee Ji-ho, senior deputy governor at the BOK, said at a price-monitoring meeting on October 2 that consumer, core and living-cost inflation all slowed from the previous month in September. But once the temporary base effect tied to mobile-phone fees in August disappeared, price pressures widened somewhat, he said. Rising semiconductor prices also led to bigger gains in durable goods prices, including electronics.

Lee said October consumer inflation would also remain elevated at around 3%. Uncertainty surrounding the Middle East war remains high, suggesting the uptrend in prices will continue.

Still, markets see little chance that the BOK will raise its benchmark interest rate again at the Monetary Policy Board meeting on October 22. After raising rates in both July and August, the central bank is widely expected to assess the impact before deciding whether further increases are needed.

Nam Jung-min, Hankyung reporter peux@hankyung.com

Shim Sung-mi, Hankyung reporter smshim@hankyung.com