South Korea’s inflation slowed to a two-month low, providing room for the central bank to cut borrowing costs further.
Consumer prices increased 1.4 percent from a year earlier after a 1.5 percent gain in January, Statistics Korea said in an e-mailed statement today. The median estimate in a Bloomberg News survey of 11 economists was for a 1.6 percent gain. Prices rose 0.3 percent from January.
Inflation is staying below the central bank’s target range of 2.5 percent and 3.5 percent after the government offered subsidies for childcare and school lunches and the economy expanded the least since 2009 last year. The Bank of Korea projected in January that consumer inflation will accelerate from 2.5 percent this year to 2.8 percent in 2014.
“Price pressure is set to rise on the back of both stronger demand and supply constraints,” Ronald Man, a Hong Kong-based analyst at HSBC Holdings Plc, said before the release. “This will gradually create a tightening bias for the Bank of Korea, with headline CPI likely to rise sharply around mid-year.”
Bank of Korea Governor Kim Choong Soo said in an interview last month that while the low pace of inflation would in theory allow room for monetary easing, the impact of such a move would be muted because of the abundant liquidity in the market. The central bank kept its benchmark interest rate unchanged at 2.75 percent for a fourth month on Feb. 14.
The won has risen 2.9 percent against the dollar over the past year, the second best performer among 16 major currencies tracked by Bloomberg.
Core consumer prices, which exclude oil and agricultural products, advanced 1.3 percent in February from a year earlier.
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