Korea: Inflation hits Central Bank target in January
Latest reading: Consumer prices increased 2.0% on a year-on-year basis in January, following a 2.3% rise in the previous month. The figure was proudly in line with market expectations and matched the Central Bank’s target, as softer fuel prices and favorable base effects helped curb price pressures.
Relative to the prior month’s data, there were reduced price pressures for transportation (+1.1% in annual terms vs +3.2% in December), food and non-alcoholic beverages (+2.9% vs +3.6% in December) and recreation and culture (+0.9% vs +1.2% in December). In contrast, price pressures were higher for clothing and footwear in January (+2.4% vs +2.3% in December). Finally, the change in housing and utilities prices was the same as in the prior month (+1.3% in January and December).
Meanwhile, core consumer prices increased 2.0% in annual terms in January, stable from the prior month’s reading.
Lastly, consumer prices increased 0.39% in January on a month-on-month basis, following a 0.32% rise in the prior month.
Panelist insight: Commenting on the outlook, analysts at Nomura stated:
“We view the KRW weakness as a potential threat to the inflation outlook. Our estimates show that a 10% decline in USD/KRW would raise headline inflation by ~0.5pp. Thus, if USD/KRW remains around current levels (1,450-1,460), we would expect inflation to face stronger upward pressures in May-July. […] Headline inflation is easing, but FX pass-through is preventing a faster decline in core prices.”