South Korea’s headline inflation slows further in August; BoK may cut rate in Q4

Headline inflation of South Korea for August decelerated further to the slowest pace since the beginning of 2016, owing to the declining prices of transport and utility. The nation’s consumer price index inflation slowed to 0.1 percent month-on-month.

On a year-on-year basis, the headline CPI rose 0.4 percent in August, following a year-on-year rise of 0.7 percent in July. The market projection was for a rise of 0.7 percent. Core inflation, which strips food and oil prices and other volatile prices, rose 1.7 percent year-on-year, unchanged from July.

In the meantime, the country’s imports rose 0.1 percent year-on-year, whereas exports grew 2.6 percent year-on-year in August. This was predominantly because of favorable base effect. Weaker growth in exports is expected to remain a drag on South Korea’s economic growth, undermining private consumption and facilities investment, said Scotiabank in a research report.

Cash reserves that are held by Korean corporate reached a record high of KRW 614.4 trillion as of the end of June, while the value of bonds and stocks issued by local companies dropped 7.8 percent month-on-month  to KRW 10.87 trillion in July in the midst of hovering economic uncertainty. Hanjin Shipping, which is the nation’s biggest container shipping firm, recently applied for court receivership. This is likely to hurt South Korea’s private consumption.

“We think the BoK will maintain a pro-growth stance and deliver a 25 bp rate cut in Q4 when mounting household debt is properly tackled”, added Scotiabank.