South Korean headline inflation likely rebounded in September on rise in food prices

South Korean headline and core inflation are expected to have rebounded in September due to food prices, following a decline in August. The drop in August inflation was mainly due temporary discount in electricity fares for the consumers. However, the rebound in September inflation is expected to be driven by increase in food prices, including meat, fruits and vegetables, according to a Societe Generale research note.

According to the media, the prices of vegetables continue to increase because of exceptionally hot weather, whereas the available data implies that prices of pork recovered after a temporary fall in August.

Meanwhile, prices of oil were greatly stable in the month. Prices of core manufacturing goods are expected to have expanded, led by processed food. Prices of services might have remained stable with stable increase in housing rents and the seasonal drop in prices of personal services, which is driven by tour services.

Both core and headline inflation would recover further in October, as the normalization of electricity fares are expected to stimulate both inflation figures by 0.4 percentage points, stated Societe Generale. Base effects from oil prices would also accelerated the headline inflation in the fourth quarter of 2016. Therefore, both headline and core inflation is expected to significantly accelerate in the fourth quarter.