South Korea inflation cools in August, back-to-back rate hike still possible
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South Korea's consumer price index rose 2.0% in August from a year earlier, down from 2.2% in July and below the 2.1% forecast. The cooling inflation could give the Bank of Korea some breathing room, but officials warned a back-to-back interest rate hike remains on the table amid persistent housing market pressures.
Inflation Data
Statistics Korea reported on Monday that August consumer price inflation eased to 2.0% year-on-year, the slowest pace in three months. Core inflation, which strips out volatile food and energy costs, rose 1.8%, compared with 1.9% in July. Both headline and core readings undershot the median estimates of economists polled by Reuters, who had forecast 2.1% and 1.9%, respectively. The Bank of Korea's 2% medium-term target has now been met for a second straight month.
Monetary Policy Outlook
Bank of Korea Governor Rhee Chang-yong said earlier that a single data point would not alter the bank's tightening stance, citing concerns over household debt and rising home prices in Seoul. The central bank delivered a 25-basis-point rate hike at its July meeting, the first back-to-back increase in over a year, lifting the base rate to 3.75%. Analysts at Nomura and Goldman Sachs said the softer inflation print reduces the urgency for another hike, but they still see a 40% probability of a move in September.
Economic Context
South Korea's economy grew 0.5% in the second quarter, slowing from 0.9% in the first, as exports weakened. Government measures to cool the property market, including stricter mortgage rules in the capital region, have yet to show a clear impact. Apartment prices in Seoul rose 0.3% in August from a month earlier, the fastest pace since January, according to the Korea Real Estate Board.
What's Next
The Bank of Korea's next policy meeting is scheduled for September 19. It remains unclear whether the board will deliver a second consecutive hike given moderating inflation but still elevated household debt and property market risks.
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South Korea inflation cools in August, back-to-back rate hike still possible
