Bloomberg News

South Korea Inflation Slows, Easing Pressure on Central Bank

November 01, 2011

(Updates with economist’s comment in fourth paragraph.)

Nov. 1 (Bloomberg) -- South Korea’s inflation slowed in October to within the central bank’s target range for the first time this year, reducing pressure on policy makers to raise interest rates to tame price gains.

Consumer prices rose 3.9 percent from a year earlier, after a 4.3 percent gain in September, Statistics Korea said today in Gwacheon, south of Seoul. The median estimate in a Bloomberg News survey of 12 economists was for a 4.2 percent increase. Prices fell 0.2 percent from September.

The Bank of Korea hasn’t raised interest rates since June as the European debt crisis and a global slowdown threatened the nation’s export-dependent economy. Korea’s growth slowed in the third quarter as companies cut spending amid concern a weakening global recovery will hurt business.

"The BOK will continue to take a wait-and-see stance on its rate policy at least until this year’s end as uncertainties remain high," Lim Ji Won, an economist JPMorgan Chase & Co. in Seoul, said before the report. "Inflation isn’t likely to accelerate much again as the weather improves and the economy slows down."

The won fell 0.5 percent to 1,110.21 per dollar as of 3 p.m. close in Seoul yesterday, according to the data compiled by Bloomberg. The benchmark Kospi stock index fell 1.1 percent. The currency has fallen 5.1 percent the past three months, Asia’s second-worst performer.

Core Prices

Core prices, which exclude energy and food costs, advanced 3.7 percent in October from a year earlier, moderating from a 3.9 percent gain in September, today’s report showed.

The Bank of Korea kept borrowing costs on hold for a fourth month in October, the longest pause since it started tightening in July 2010. The benchmark interest rate was raised three times this year, most recently in June, to 3.25 percent.

Asia’s fourth-largest economy grew 0.7 percent last quarter from the three months through June, when it expanded 0.9 percent, the central bank said Oct. 27. Maintaining growth may continue to take precedence over countering inflation, with the central bank saying Oct. 13 that “downside risks” have increased because of Europe’s crisis and signs of sluggishness in developed economies.

There is also rising concern that weaker overseas demand will hurt earnings of the nation’s largest exporters. Samsung Electronics Co.’s third-quarter net profit decreased 23 percent from a year earlier as computer-memory chip and panel sales slumped.

LG’s Loss

LG Electronics Inc. reported a wider-than-estimated quarterly loss for the three months ended September as mobile- phone sales missed forecasts and earnings fell at its flat-panel unit.

Exports, equivalent to about half of gross domestic product, probably increased 10.9 percent in October from a year earlier, the slowest pace since October 2009 when it decreased 8.5 percent, according to a Bloomberg News survey of 12 economists. Data will be released at 9 a.m.

South Korea’s factory output rose in September for the first time in three months as overseas shipments of cars and semiconductors withstood the global slowdown, Statistics Korea said yesterday.

The leading index of economic indicators rose 1.5 percent from a year earlier, compared with a 2 percent gain in August. Sales of consumer goods fell 0.2 percent from August and advanced 1.5 percent from a year earlier.

--With assistance from Sarina Yoo in Seoul. Editors: Shamim Adam, Ken McCallum

To contact the reporters on this story: William Sim in Seoul at wsim2@bloomberg.net; Eunkyung Seo in Seoul at eseo3@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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