South Korea's inflation eases more than expected, fueling speculation of a rate cut

Consumer inflation in South Korea eased more than forecast in September, falling below the central bank's target for the first time since early 2021, amid growing expectations of an imminent policy easing.

The consumer price index (CPI) rose 1.6 per cent in September from a year ago, following an increase of 2.0 per cent in August, Statistics Korea reported on Wednesday.

This reading was weaker than a median of 1.9 per cent, the figure predicted in a Reuters poll of economists, marking the slowest annual growth since February 2021.

Add WION as a Preferred Source

The reading was below the Bank of Korea's (BOK) medium-term goal of 2 per cent, and discussions among policymakers and market participants about a possible interest rate cut have begun growing as the next policy meeting is scheduled for October 11.

The three-year rate-sensitive treasury bond yield slipped 3.4 basis points to 2.777 per cent, the lowest since April 2022.

The price stabilisation trend was continuing, Finance Minister Choi Sang-mok and BOK Deputy Governor Kim Woong said separately.

"The data once again backed the case for rate cuts," said Ahn Jae-kyun, a fixed-income analyst at Shinhan Securities, who expects the BOK to lower interest rates next week.

"There is a precedence of the BOK lowering interest rates after seeing inflation coming down to the 1% range from 2%, but what is different this time is household debt and the central bank's stance on it," Ahn said.

At its last meeting in August, the BOK maintained interest rates at a peak of 16 years of 3.50 per cent, even though inflation eased and domestic demand was weakening amid growing concerns that the board members have regarding the risks to financial stability associated with this hot housing market.

The CPI gained 0.1 per cent from the previous month, below an economists' forecast gain of 0.3 per cent and slower than the 0.4 per cent in the previous month. Petrol product prices declined 4.1 per cent, and private services fell 0.4 per cent, but gains in agricultural products and public utilities offset these declines.

Core CPI, which excludes volatile food and energy prices, advanced 2.0 per cent year on-year and was slower than a 2.1 per cent rise in the prior month, also the weakest since November 2021.