Consumer prices in South Korea first increase since April

SEOUL – South Korea’s consumer price index advanced in July, led by fresh foods, adding to signs that the economic downturn from the COVID-19 pandemic is bottoming out, though questions linger about the strength of recovery.

Inflation accelerated to 0.3% from June’s zero and May’s negative readings, data from the country’s statistics office showed today. Economists had also expected consumer prices to increase 0.3% from a year earlier.

The emerging inflationary pulse supports the view that a turnaround from the COVID-19 slump is under way, aided by government stimulus that included three extra budgets and an effective quarantine that enabled businesses to remain open.

Still, inflation is far below levels seen earlier this year, as the uncertain economic outlook remains dependent on virus developments. Falling prices in transportation, electricity and energy also show inflationary pressures are weak.

Key insights

The Bank of Korea will review its economic outlook on August 27, having earlier forecast a 0.2% contraction for the economy and inflation at 0.3% this year. Inflation is far below the central bank’s 2% target, and governor Lee Ju-yeol has repeatedly said monetary policy will remain accommodative until the economy recovers.
Positive economic momentum has been seen in trade data, with the drag from exports diminishing, while business and consumer confidence have also improved in recent months.
South Korea’s government has so far pledged at least 270 trillion won (US$226 billion or RM953.16 billion) to support the virus-hit economy, including direct handouts to families. While this has helped avert a deeper slump, the country’s dependency on trade means lockdowns in other major economies need to be further lifted for its recovery to take off.
With pain on the trade front likely to continue as restrictions around the world persist, the government will try to stimulate consumption in areas including tourism, entertainment and sports, Finance Minister Hong Nam-ki said in a statement following the price data.