South Korea’s Feb inflation data gives some respite

By Park Sae-jin Posted : March 3, 2016, 12:48 Updated : March 3, 2016, 12:48

[Aju News DB]



South Korea's inflation rebounded sharply in February, diminishing prospects that the central bank will soon cut rates to boost economic growth.

The consumer price index rose 1.3 percent in February from a year earlier, Statistics Korea said, up from a 0.8 percent increase in January and higher than the 1.0 percent gain expected by market analysts.

In monthly terms, the index rose 0.5 percent in February, up from zero in January and above expectations for a 0.1 percent advance. February’s reading was the highest since January last year.

Thursday's data also showed the consumer index for services rose 2.4 percent in February on-year, rising at the same pace as it did in January and supporting the government's claims that consumption is recovering steadily.

Core inflation, which excludes the volatile costs of food, added 0.3 percent on month and 1.8 percent on year. That's up from 0.2 percent on month and 1.7 percent on year in the previous month.

The data provides some relief to policymakers who are struggling to put Asia’s troubled fourth largest economy on track by boosting domestic consumption and reviving faltering exports.

Analysts say there would be no reason for the Bank of Korea to rush and cut interest rates this month because of February’s better-than-expected inflation data. In January, the central bank downgraded inflation forecasts for this year, saying it now expected consumer prices to rise by 1.4 percent in 2016, versus the prior estimate of 1.7 percent.

Although the market consensus is currently for a rate cut at the central bank's March 10 policy meeting, minutes from the February 16  meeting released on Wednesday showed a majority of the bank's policy committee members were in a wait-and-see mood.

Committee members concluded that these economic hazards were best served by keeping policy steady as the effects of an interest rate cut were uncertain and could even end up stoking more financial instability, the minutes showed.

The minutes showed that Ha Sung-keun, who was the sole dissenter to vote for a 25 basis-point cut in the policy rate, had cautioned that economic growth would likely miss the central bank's forecast of 3.0 percent for this year by a wide margin.

Finance Minister Yoo Il-ho, however, said Thursday that the government is retaining its growth forecast for this year at 3.1 per cent for the moment as the current weak economic trend is within expectations.

"Exports will be weak this year. We already knew that things were going to be difficult this year and this was calculated into our growth forecast," he said.

"Exports are not our only source of growth," he added.

South Korean exports in February tumbled in their 14th consecutive month of declines, with the longest slump in the country's modern history. Lower oil prices also hurt exports in February, which dropped 12.2 percent from a year earlier to $36.42 billion.

February's exports marked the longest period of consecutive annual declines on record and brought the country's monthly exports down by 30 percent from a record high of $51.6 billion set in early 2014.

By Alex Lee
 
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