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South Korea’s Inflation recovered on high prices of food

South Korea's headline inflation rebounded in February, rising above 1 percent in two months, on the back of fast rises in food and services prices, a government report showed Thursday.


Consumer prices gained 1.3 percent in February from a year earlier, rebounding from a 0.8 percent rise in January, according to Statistics Korea.

The headline inflation, which had maintained a zero-percent level for 11 months through October last year, advanced to 1.0 percent in November and 1.3 percent in December each, before falling to 0.8 percent in January this year. But, it rebounded to 1.3 percent in February.

The February rebound was attributable to a sharp increase in fresh food prices, including fruits and vegetables, and higher services prices.

The fresh food index, which gauges prices in fruits and vegetables, surged 9.7 percent in February from a year earlier, posting the fastest monthly increase in 37 months since January 2013.

Cold weather and snowfall resulted in lower supply of farm goods, while the Lunar New Year’s holiday boosted demand for food, leading to a surge in food prices.

Prices for agricultural, livestock and fishery products jumped 5.6 percent in February from a year ago. Onion prices soared 118.6 percent, with those for green onion, napa cabbage and garlic posting a double-digit increase. Prices for green chili and cucumber declined more than 10 percent.

The livelihood price index, which measures prices in daily necessities, gained 0.9 percent last month, recording the highest figure in 19 months.

Services prices climbed 2.4 percent in February on a yearly basis, the highest in four years. Utility prices showed a sharp rise, with subway and intra-city bus fares jumping 15.2 percent and 9.6 percent each.

Oil product prices declined 8 percent in February, but it was higher than the January reading due to the slowing pace of crude oil prices decline.

Industrial goods prices inched down 0.2 percent in February, with those for electricity, tap water and natural gas declining 8 percent.

As the consumer price inflation stayed below the Bank of Korea (BOK)’s inflation target of 2 percent for an extended period of time, the central bank is expected to focus on economic indicators like exports and private consumption.

“We believe that the BOK will focus on weaker growth as CPI inflation remains below target,” Kwon Young-Sun, a Hong Kong-based economist at Nomura International, said in a report, expecting a 25-basis-point cut in the BOK’s policy rate during the March 10 rate-setting meeting.

The BOK cut its benchmark interest rate by a quarter percentage point in March and June last year to an all-time low of 1.5 percent, after lowering it by the same margin in August and October 2014.

As recent economic indicators showed a bleak picture, expectations emerged for the BOK’s further rate cuts.

Exports, which account for about half of the South Korean economy, posted a double-digit decline for three straight months through February.

Industrial production, corporate investment and private consumption all reduced in January, boosting worries that the economy may fall into a prolonged economic slowdown. Enditem

Source Xinhua

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