Korea Inflation Eases on Cooler Energy Prices That May Not Last

Apr 3, 2023

Sam Kim, Bloomberg News

(Bloomberg) -- South Korean inflation eased more than expected in March in response to a cooling of energy prices that may prove temporary following OPEC+'s surprise weekend announcement of a cut in oil output.

Consumer prices advanced 4.2% from a year earlier, slowing from February's 4.8% and coming in below economists’ expected 4.3%, statistics office data showed Tuesday. Core inflation, which excludes oil and agricultural prices, held at 4.8%, reflecting strong underlying price pressures in the economy.

"Korea's inflation appears to be returning to a stable path, but costs central to people's life keep increasing because demand for housing, eating and clothing isn't something that can change easily," said Lim Dong-min, a Kyobo Securities researcher. "OPEC+'s cut will also have a direct impact on the prices of energy and commodities from as early as next month."

The March report will be closely analyzed by the Bank of Korea when it meets to decide interest rates next week after policymakers stood pat in February to assess the impact of tightening since August 2021. The latest data provides the BOK with enough confidence to hold the rate, Lim said.

The board kept the door open to further rate increases at the February meeting, when five members sought to retain the option to lift the key rate to 3.75%, while only one wanted to keep it at the current level of 3.5%.

Rising public-service costs are among risks to Korea's consumer prices. OPEC+ over the weekend announced an oil production cut of more than 1 million barrels a day, posing a new threat to global inflation and to South Korea in particular as a heavy oil importer. That threat comes in addition to China's reopening and Russia's war on Ukraine.

Federal Reserve policy and concerns over further banking turmoil in the US are other factors that the BOK is monitoring as it plots its course of action.

In February, the central bank said Korea's price growth would gradually slow to a low-3% range by the end of 2023. It will recalibrate inflation projections in May.

Today's report also showed:

--With assistance from Tomoko Sato.

(Adds comment from analyst.)