South Korea: Inflation at a decade-high in November – UOB

Economist at UOB Group Ho Woei Chen, CFA, comments on the latest release of inflation figures in South Korea.

Key Takeaways

“Inflation rose unexpectedly in November. Headline inflation accelerated to 3.7% y/y, 0.4% m/m (Bloomberg est: 3.1% y/y, -0.2% m/m), up from October’s 3.2% y/y, 0.1% m/m. This is a fresh decade high and marks the 8th consecutive month that the inflation rate is above Bank of Korea’s (BOK) 2% target.”

“The core CPI (excluding agricultural products & oils) moderated to 2.3% y/y from 2.8% in October but was also a surprise increase against Bloomberg’s consensus of 2.2%. Compared to the previous month, core CPI rose 0.1% vs. 0.3% gain in October.”

“With year-to-date inflation at 2.3% y/y, the average full-year inflation is likely to be 2.4% this year, slightly exceeding BOK’s revised forecast. The BOK raised its inflation forecast in November to 2.3% for 2021 (from 2.1%) and 2.0% for 2022 (from 1.5%). We expect headline inflation to stay above the BOK’s target in 1H22 before moderating in the later part of the year, partly due to the high comparison base.”

“Given the surge in November inflation as well as sustained strength in its macroeconomic data, we continue to project the next BOK rate hike in 1Q22, likely at the February meeting.”