South Korea’s consumer prices in February grew at their slowest pace in 10 months, supporting views that the central bank might be finished with its current cycle of policy tightening.
The consumer price index (CPI) rose 4.8% year-on-year in February, down from January’s 5.2%, according to data from Statistics Korea released on Monday (March 06).
This rate was below the 5.1% increase predicted in a Reuters poll and marked the lowest inflation rate since April 2022.
By category, livestock product prices fell by 3.2% from the previous month, while petroleum product prices slid by 1.3%, contributing to the lower inflation rate.
On a monthly basis, the inflation index increased by 0.3%, compared to a 0.8% rise in January and a 0.5% increase expected by economists.
Ahn Jae-kyun, a fixed-income analyst at Shinhan Securities, noted that the slower pace of rising private service prices reduces the likelihood of additional rate hikes by the central bank on the domestic front.
Annual core inflation, excluding volatile food and energy prices, edged down to 4.0% from 4.1% the previous month, reaching its lowest level since August, suggesting easing underlying price pressures.
The Bank of Korea (BOK) stated that the February inflation data was in line with expectations and predicted a significant drop in the inflation rate in March due to high base effects.
The BOK kept interest rates steady last month after a year of continuous hikes, indicating that the tightening cycle would not resume if inflation continued to moderate as expected.
Finance Minister Choo Kyung-ho also mentioned that the inflation slowdown would become more apparent going forward, barring any external shocks.
In response to the inflation data, South Korean three-year treasury bond futures rose by 0.24 points to 103.49 during the morning session, boosted by a drop in U.S. Treasury yields over the weekend.
The inflation slowdown and steady interest rates reflect growing confidence that inflationary pressures in South Korea are easing, allowing the central bank to pause its aggressive monetary tightening measures.
