South Korea’s Inflation Slows, Offering Relief for Central Bank
Sam Kim

A customer is reflected in a mirror as she looks at clothing on sale at the Hyundai Development Co. I'Park Mall department store in Seoul, South Korea, on Friday, Aug. 31, 2018. South Korea is scheduled to release consumer price index (CPI) figures on Sept. 4. Photographer: SeongJoon Cho/Bloomberg

(Bloomberg) -- The pace of South Korea’s consumer inflation slowed more than expected in November, offering relief to central bank authorities alarmed by accelerating price gains in preceding months.

Consumer prices rose 3.3% from a year earlier, decelerating from 3.8% growth in October, the statistics office reported Tuesday. Economists surveyed by Bloomberg were expecting inflation to slow to 3.5%.

Bank of Korea Governor Rhee Chang-yong and his policy board made it clear last week that fighting inflation remains their top priority. The bank raised its inflation forecast for next year to 2.6% from an earlier projection of 2.4% and also nudged up its prediction for this year to 3.6% in an indication that it would take longer to cool inflation than previously thought.

Agricultural prices have been a major driver of inflationary pressure in Korea in recent months, while tight labor markets and fast wage hikes are leading factors spurring prices in other developed nations, according to the BOK. While BOK officials predict a slowing of inflation in the last part of 2023, rising prices for utilities, liquor and travel may limit how much price gains decelerate, the bank said in a report last week.

The BOK hopes to see inflation gauges fall to the 2% range before it considers any potential policy easing. Officials are also mindful of the need to deter any further ballooning of household debt levels that could weigh on economic growth in the long run.

Still, there are signs the BOK is relaxing its hawkish tone. Two board members said at last week’s meeting that the current policy rate of 3.5% is a suitable peak, while four others remained open to the possibility of a further increase if needed to combat inflationary pressure. That’s in contrast to a pledge from all six members to stay open to a potential hike if necessary in October.

Forecasting the trajectory of inflation has become more challenging since the Israel-Hamas conflict erupted in October, with the war threatening to fuel increases in oil prices if the violence spreads. This week southern parts of the Gaza Strip have been hit by airstrikes after Israel called for the evacuation of areas where it believes Hamas leaders are hiding.

Inflation is a key concern for government officials, as stubbornly high living costs could undermine support for President Yoon Suk Yeol and make it tougher for his party to win parliamentary elections in April.

Separately, the BOK said the South Korean economy grew 0.6% in the third quarter from the previous three months, in line with the initial estimate in preliminary data.