South Korea’s inflation in January drooped after the food volatility factor was removed, rising 1.0 percent against a year ago in the most subdued price gain in 17 months that could place the Korean central bank in a policy bind in upcoming meetings as the U.S. Federal Reserve is poised to renew hikes in March.
According to Statistics Korea on Thursday, the nation’s consumer price index (CPI) rose 1.0 percent in January from a year earlier, sharply slowing against last year’s average of 1.9 percent.
At its January policy meeting, the Bank of Korea lowered its projection for this year’s inflation to 1.7 percent but expected the inflationary pressure to grow from the latter half to reach the target level of 2.0 percent next year.
The headline CPI last year had hovered around 2.0 percent as fresh food and oil prices remained high despite overall subdued demand.
Vegetable prices last month fell 12.9 percent on year, pulling down the headline CPI by 0.25 percentage point.
Utility fees dropped 1.5 percent while service charges, including rent charges and personal and public service charges, rose 1.4 percent, climbing at their slowest pace in nearly four years.
The index for everyday expenses reflecting spending for staple food and utility fees gained 0.9 percent on year, the smallest rise since the 0.2 percent fall in August 2016.
The recent inflation figures appear subdued when compared with last year’s high fresh food prices, according to Statistics Korea.
When excluding volatile oil and farm produces, the core inflation gained 1.1 percent on year. The CPI without food and energy, the standard by the Organization for Economic Cooperation and Development (OECD), was up 1.2 percent.
The yield curve has been flattening in Korea to track the U.S. market as appetite for long-dated bonds soured on the growing prospects for increases in interest rates.
The 30-year government note yield fell 1.9 basis points to 2.664 percent, narrowing closer to the five-year note at 2.538 percent on Thursday. The 10-year yield fell 1.3 basis points to 2.756 percent, a level not seen since December 2014.
The U.S. Federal Reserve on Wednesday kept the fed fund target range unchanged at 1.25 percent to 1.50 percent in its last meeting chaired by outgoing Janet Yellen, but indicated it could raise rates as soon as March upon signs of an inflation pickup.
In November, the Korean central bank raised its policy rate to 1.5 percent for the first time in more than six years. Governor Lee Ju-yeol, who would be presiding his last monetary policy meeting on Feb. 27 before he retires in March, said the bank will moderate the pace of rate hikes on domestic conditions.
By Lee Yu-sup and Kim Hyo-jin
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