South Korea's Inflation Continues to Cool
South Korea experienced a slowdown in headline inflation for the sixth consecutive month, reaching a 25-month low in July. This ongoing easing of inflationary pressures supports the current decision of the central bank to maintain its tightening pause. According to the country's statistics office, the benchmark consumer-price index rose by 2.3% compared to the previous year in July, marking the slowest increase since June 2011 when the same pace was recorded. In June, the index had risen by 2.7% on a year-on-year basis.
The lower energy prices played a significant role in consistently keeping inflation at a lower level. Additionally, higher comparison bases from the previous year contributed to this year's relatively softer inflation figures. Although the July reading fell short of the median market forecast of 2.4%, it still exceeded the central bank's annual target of 2.0%.
In terms of monthly changes, the index recorded a 0.1% increase in July, following a flat performance in June. When excluding volatile food and energy prices, the core consumer-price index (CPI) exhibited a year-on-year growth rate of 3.3% in July, slightly lower than the gains of 3.5% observed in June. On a monthly basis, core CPI increased by 0.2%, moderating from the 0.1% rise seen in the previous month.
Since February, the Bank of Korea has suspended its rate-increase campaign due to indications of easing inflation and a weakening economy driven by sluggish exports and subdued consumer spending within the country. Consequently, there is a growing expectation that the central bank may gradually shift toward an easing policy after several years of tightening measures.
According to the bank's forecasts, South Korea's economy is projected to grow by 1.4% in 2023, slower than the 2.6% growth achieved in the previous year. Furthermore, inflation is expected to average at 3.5% for this year, following a rate of 5.1% recorded in 2022.
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