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(Bloomberg) -- South Korea’s consumer prices returned to growth in November but at a much weaker pace than expected, underscoring softness in inflationary pressure in an economy hurt by trade tensions and sluggish global demand.

Consumer prices rose 0.2% in November from a year earlier, rising for the first time in four months, according to a statement from the country’s statistical office on Monday. Economists had forecast a 0.7% rise, following a 0% reading in October and a first-ever drop in September. The data follows a bigger-than-expected exports decline for November, which damped optimism that a prolonged slump in global demand may finally be bottoming out.

Key Insights

  • South Korea’s central bank held interest rates at 1.25% on Friday, and said the economy will probably grow 2% this year, the slowest pace since the global financial crisis. It forecast inflation at 0.4%, far below the bank’s 2% target.
  • Below-zero inflation in September had raised concerns over deflation risks. South Korean officials have dismissed those concerns as excessive, blaming higher-than-usual food prices last year. The BOK expects inflation to rise to 1% in 2020.
  • “Looks like next year will be another tough one for inflation,” said Yoon Yeo-sam, an analyst at Meritz Securities in Seoul . “The economy appears largely to be bottoming out, but the pace of rise just isn’t strong enough.”
  • Recent data from South Korea has been mixed. Consumer confidence improved for a third month in November, rising above 100 for the the first time since April. Pulling in the other direction, industrial production fell more than expected in October from the previous month while exports extended its double-digit slide in November.
  • “A technical rebound in CPI does not mean a meaningful turnaround in the underlying prices trend,” said Ma Tieying, an economist with DBS Bank before the release. Disinflationary forces still appear intact for the time being, given the decline in producer prices and negative output gap, she added.
  • South Korea’s aging population and falling potential growth are two challenges that raise the risk of structural deflation in the long term.
  • “Our base case is for a gradual uptick in CPI from here and that should take some pressure off the BOK in the interim,” said Howie Lee, an economist at Oversea-Chinese Banking Corp, before the release.
What Bloomberg’s Economist Says

“We expect inflation to hover around 0% for the next few months, then rise back toward 1% in the year ahead. Weak price pressures underscore slack in the economy.”-Justin Jimenez, economistClick here to read more.Get more

  • A base effect from last year’s surge in oil prices continued to weigh on last month’s inflation, while an easing of declines in agricultural, oil products offered some relief, according to a separate statement from the finance ministry. Consumer prices gained 2% in November 2018 from the previous year.
  • Compared with the previous month, consumer prices fell 0.6% in November, the most in a year. Food prices and industrial products were among factors dragging down the number, the statistical office said.
  • Core inflation rose 0.6% from a year earlier.
(Updates with analyst comments, details from statement, and new chart.)


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