Inflation Slows Down in South Korea; Room for Interest Rate Cuts Emerges

Forex - South Korea's headline inflation fell to its lowest level in 45 months in October, strengthening the case for the Central Bank to continue lowering interest rates. According to the announcement by the South Korean Statistics Bureau, consumer prices rose by 1.3% in October compared to the same month last year, marking the lowest growth rate since January 2021. Lower oil prices and base effects contributed to the slowdown in inflation from 1.6% in September. Market expectations had forecast inflation to be 1.4%.

Consumer prices remained unchanged in October compared to the previous month, falling short of the market expectation of 0.2%. In September, consumer inflation increased by 0.1% compared to the previous month.

Excluding volatile food and energy prices, the core Consumer Price Index (CPI) increased by 0.2% month-on-month and 1.8% year-on-year in October.

The declining inflation was one of the reasons behind the South Korean Central Bank's decision to lower its policy interest rates for the first time in more than four years in October.

Some analysts have pointed out that inflation in South Korea could rise due to diminishing base effects. It is indicated that the recent end of temporary fuel tax cuts could reignite inflationary pressures in the country.

The Central Bank has signaled that it may pursue further interest rate reductions to support the economy; however, this is unlikely to occur in the near term. The bank has a scheduled interest rate meeting at the end of this month; however, very few analysts expect a reduction from this meeting. Most analysts predict that the next interest rate cut will come in the first quarter of 2025.