Inflation in South Korea close to its highest level in 24 years; markets focus on weak economy


FILE PHOTO: An office worker has lunch at a convenience store in Seoul, South Korea June 24, 2022. REUTERS/Heo Ran

Join now for FREE unlimited access to Reuters.com

Register

  • Inflation in July close to its highest level in 24 years of 6.3%, identical to forecasts
  • Central bank says July data was in line with its projections
  • Bonds rally as economic slowdown draws attention

SEOUL, Aug 2 (Reuters) – Consumer price inflation in South Korea accelerated to a nearly 24-year high in July, data showed on Tuesday, but other figures indicated the rate of price increase could be close to a peak.

Meanwhile, signs of an economic slowdown sent bond yields tumbling.

Bond yields were also pushed lower by a comment from the central bank that the recovery in the annual inflation rate to 6.3% in July from 6.0% in June was in line with what it had expected when interest rates hiked by an unusually large margin last month.

Join now for FREE unlimited access to Reuters.com

Register

July’s inflation rate was the fastest gain in the consumer price index (CPI) since late 1998 and matched the median forecast from a Reuters survey.

But the core CPI, which excludes food and energy prices, ended a three-month run of successive accelerations, implying a spike in underlying price pressure.

“It is encouraging that inflation has unfolded as expected,” said Kang Seung-won, fixed income analyst at NH Investment and Securities, referring to several recent months when inflation tended to beat expectations. of the market.

Yields on local government bonds fell across the board on Tuesday, with the benchmark 10-year yield falling 12.1 basis points to 3.065%. That was 78.2 basis points lower than a 2022 peak set in late June.

“South Korea’s price trend is strongly influenced by the exchange rate and global oil prices, and both are stabilizing or falling,” Kang said, noting that the dollar/won exchange rate was now lower than the average price. about 1% to that of a few weeks ago.

The central bank’s statement that the rate of inflation was only what it expected was a subtle shift in its public assessment of economic conditions.

“Consumer inflation continued to hold at the 6% level in July, which was in line with projections from the last monetary policy meeting on July 13,” Deputy Governor Lee Hwan-seok said Tuesday during a meeting. an internal meeting, according to a statement from the central bank.

The statement encouraged bets that the Bank of Korea’s policy would gradually shift towards supporting the economy in the near future, if not immediately.

SIGNS OF PEAK PRICE PRESSURE

On July 13, the Bank of Korea broke its tradition of raising its key interest rate by 25 basis points each time, instead of raising it by 50 points. But he promised to return to tradition. Read more

Results from a monthly survey by S&P Global of South Korean manufacturers’ purchasing managers showed signs of peaking price pressure on Monday. Read more

As inflation concerns ease, market attention quickly turns to growing signs of the economy, Asia’s fourth-largest, losing momentum as global demand for its exports slows and that consumers become less willing to spend in the future.

A central bank survey, meanwhile, also showed manufacturers’ expectations for capital spending falling.

While South Korea’s exports in July rose 9.4% from a year earlier in dollar value, in line with expectations, they fell in volume, as they had been in June .

The central bank’s latest monthly survey index of consumer sentiment fell in July by the biggest margin in 28 months to its lowest level in 22 months, data showed last week. Read more

Join now for FREE unlimited access to Reuters.com

Register

Reporting by Jihoon Lee and Choonsik Yoo; Editing by Tom Hogue and Bradley Perrett

Our standards: The Thomson Reuters Trust Principles.

Previous Is the fall of the yen a concern?
Next Deshaun Watson's flawed punishment is a lesson for Roger Goodell's NFL