South Korea October CPI Rises 2.8%, Keeping Focus on Further BOK Rate Hikes

South Korea’s consumer inflation remained elevated in October, keeping markets focused on the possibility of another benchmark interest-rate increase by the Bank of Korea.

The consumer price index rose 2.8% in October from a year earlier, the national statistics agency said on Nov. 3. That was slightly slower than September’s 2.9% increase and in line with the 2.8% estimate compiled by Bloomberg.

Core inflation, which excludes volatile items such as food and energy, was 2.8%, unchanged from the previous month. The reading also topped the market forecast of 2.7%, underscoring persistent underlying price pressures.

Bloomberg said the inflation burden could keep the Bank of Korea on a tightening path. BOK Governor Shin Hyun-song said inflation is expected to stay above the central bank’s 2% target for the time being, reaffirming its stance of maintaining restrictive monetary policy until a clear trend of price stabilization emerges.

The Bank of Korea left its benchmark rate unchanged at 3% at its Monetary Policy Board meeting on Oct. 22. The decision followed quarter-point rate increases in July and August. The central bank is set to release its revised economic outlook at its Nov. 26 meeting.

The gap between exports and domestic demand is also a factor for monetary policy. South Korea’s gross domestic product grew 1% in the third quarter from the previous quarter, above the market forecast of 0.8%. Facility investment rose 4.1%, while private consumption fell 0.2%, showing that semiconductor-led export strength has yet to fully translate into a recovery in domestic demand.

Exports continue to rise sharply. October exports adjusted for the number of working days climbed about 76% from a year earlier, while semiconductor exports surged 259% to $56.4 billion. The Bank of Korea said stronger semiconductor demand is supporting exports and investment, while improving income should gradually lead to a recovery in consumption.