(Bloomberg) — South Korea’s inflation slowed more than expected to the central bank’s target, opening the door for monetary officials to consider a policy pivot as soon as next month.
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Consumer prices advanced 2% in August from a year earlier, moderating from a 2.6% clip in July, the statistics office reported Tuesday. Economists surveyed by Bloomberg had forecast the pace of price growth would ease to 2.1%. The deceleration was amplified somewhat by comparisons with last year, when price growth surged on higher energy costs.
For years the Bank of Korea has fought to tame consumer prices that climbed sharply in response to government stimulus undertaken to shore up activity during the coronavirus pandemic. The BOK has since early 2023 held its key rate at 3.5%, a level it characterizes as restrictive.
Authorities have maintained their inflation target at 2%, and after steady progress in cooling prices since a peak in the summer of 2022, four of seven board members are now open to the idea of cutting the rate by year-end. While Governor Rhee Chang-yong hasn’t disclosed his own view, many economists expect the BOK to proceed with a cut when the board next sets policy on Oct. 11.
With prices moving more or less in line with central bank projections, policymakers are now increasingly focused on home prices in Seoul. Values have risen at a fast pace in the capital, spurring concerns that households will take on more debt and financial imbalances will emerge.
Government officials have stepped in with measures to rein in housing prices, pledging a greater supply of homes and tightening lending regulations. In August, apartment purchases in Seoul fell for the first time in months, while sales prices continued their slide.
Meantime, weak private spending along with simmering credit risks in construction add to the case for the BOK to consider a rate cut next month. Growing odds that the Federal Reserve will begin a pivot this month also support the view that the BOK could follow suit at its next meeting.
The inflation report on Tuesday showed that the costs of food and non-alcoholic beverages rose 2% from a year earlier in August while the prices of clothes and shoes increased 2.5%. Communications costs advanced at the weakest pace, increasing 0.3%.
(Updates with charts and details)
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