South Korea’s inflation quickens above forecast, keeping policymakers on watch

SEOUL (Reuters) – South Korea’s annual consumer inflation accelerated to 3.4% in August while the month-on-month rate was the fastest since early 2017, which should keep policymakers on alert for any sustained uptick in prices.

The Bank of Korea (BOK) last month held interest rates steady for a fifth straight meeting, as it continued to prioritise price stabilisation amid heightened growth risks.

On a monthly basis, the consumer price index (CPI) rose 1.0% in August, after gaining 0.1% in the prior month, official data showed on Tuesday, beating economists’ median forecast for a 0.3% rise in a Reuters survey.

Annual inflation, which accelerated for the first time in seven months, also topped the 2.7% expected by economists, and marked the quickest since April. It followed a 2.3% rise in July, which was the slowest in 2 years.

The BOK has said consumer inflation is likely to accelerate to around 3% in August and September, before easing again, meaning the latest figures should not come as a surprise to policymakers.

Commenting on the data, the finance ministry said the inflation rate was affected by temporary factors such as adverse weather conditions, along with a rise in global energy prices, but that the overall slowing trend in prices was maintained.

Broken down by sector, prices of petroleum products jumped 8.1% over the month, agricultural prices surged 10.5%, while public service prices climbed 0.5%.

Core CPI, which excludes volatile food and energy prices, rose 3.3% on an annual basis, unchanged from the previous month.

(Reporting by Cynthia Kim and Jihoon Lee; Editing by Shri Navaratnam)