Stagnant demand keeps Korea’s CPI subdued, up 1.5% in May

2018.06.01 12:46:49 | 2018.06.03 11:50:14

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South Korea’s headline inflation in May remained subdued with the growth pace hovering below 2 percent for the eighth straight month despite strong fresh food and oil prices as domestic consumption stayed stubbornly lackluster despite record government spending.

According to Statistics Korea on Tuesday, the country’s consumer price index (CPI) rose 1.5 percent in May against a year ago, easing from the 1.6 percent gain in the previous month. It is the eighth month in a row for the headline inflation to stay below 2 percent. The last time the CPI’s gain remained below 2 percent this long was 2014-2015.

The headline inflation has been underperforming the Bank of Korea’s 2 percent target since October, putting the central bank in a policy bind. It kept the policy rate unchanged at 1.5 percent despite increases in the Fed Fund rate that put the Korean rates below the U.S. interest rates.

The three-year government bond yield finished Friday 0.2 basis points lower at 2.193 percent and the five-year bond unchanged at 2.479percent.

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Prices of agricultural products jumped 9.0 percent on year and lifted up the headline inflation by 0.38 percentage point. Vegetable prices jumped 13.5 percent, the highest since August last year.

Livestock product price plunged 8.1 percent on year, down further from the 4.7 percent fall in the previous month.

Utility charges fell 3.3 percent, the sharpest drop since last November`s 6.7 percent drop.

Petroleum products price soared 6.0 percent on year and pushed up the headline inflation by 0.27 percentage points due to rising global oil prices. It is the fastest on-year gain in five months.

The core inflation excluding volatile oil and farm produces rose 1.3 percent on year and the CPI without food and energy, the standard by the Organization for Economic Cooperation and Development (OECD) was up 1.4 percent. Both figures have remained roughly the same as April when it marked 1.4 percent each.

By Lee Yu-sup and Cho Jeehyun

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