S. Korea's inflation rate expected at 2.0% next year

South Korea's October inflation came in at 0.9% y/y (Sep: 0.6%; Aug and Jul: 0.7%), a little higher than expected. The print was driven by food prices, which rose 1.9% y/y (Sep: 1.0%; Aug: 2.2%), although on a m/m basis they fell modestly (Oct: -1.1% m/m; Sep:-0.5% m/m).  

Electricity was another driver, with electricity tariffs returning to June levels after they were reduced by 6.7% m/m for three months between July to September. Oil prices remained the dominant drag in October, but the distortion eased slightly, mainly reflecting the 2.4% m/m increase in the retail pump prices (Sep: -2.3%). 

It is believed that the earlier unwarranted concern on deflation will dissipate and that inflation is set to trend higher, to 1.2% y/y on average in Q4, when the base effects related to last year's fall in oil prices drops out of y/y comparisons. 

Core inflation, on the other hand, remained firm at 2.3% y/y in October (Sep and Aug: 2.1%), on the back of the increased electricity tariffs and a steady contribution from services (Oct: 1.25pp; Sep: 1.20pp; Aug: 1.14pp). Therefore, the full-year inflation for the country is anticipated at 0.8% for 2015 and 2.0% for 2016, said Barclays.