Korea's Inflation Slips to 1-Year Low While GDP Strengthens

(Bloomberg) -- South Korea's inflation unexpectedly slowed to a one-year low as the government lowered city gas charges and vegetable prices stabilized on higher farm output. Economic growth was slightly stronger than the central bank's initial estimate and exports expanded close to 10 percent.

Big Picture

The economy is forecast to grow more than 3 percent this year, with strong exports fueling profits at key manufacturers such as Samsung Electronics Co. The central bank has used that room to start tightening policy, raising the benchmark interest rate from a record low this week. Still, the slowdown in inflation is likely to make the central bank cautious when considering the next increase. Governor Lee Ju-yeol said on Thursday that although the direction is to reduce accommodation, steps will be taken after a careful look at economic growth and inflation trends.

Economist Takeaways

• “The increase in third-quarter gross domestic product was expected, and not enough to change our view of 3.2 percent economic growth for this year, as private consumption seems to have weakened in October,” said Stephen Lee, an economist at Meritz Securities Co.
• “Export data shows the improvement trend remains valid. CPI was disappointing, but November is traditionally a month where price pressures from leisure and education activities are weak and there were also factors like the city gas price cut,” Lee said.
• Lee said he sticks with the view that the central bank will increase interest rates once more in the second quarter of 2018 to 1.75 percent.

Details

• Imports rose 12.3 percent in November from a year earlier, leaving a trade surplus of $7.8 billion
• The trade ministry said exports to China increased 21 percent in November to a record $14 billion, while those to the U.S. and Japan each rose 11 percent
• The ministry said trade conditions are expected to remain favorable due to the global economic recovery, continued improvement in manufacturing and technology industries, and better relations with China
• Core inflation, which excludes volatile commodity prices, rose 1.2 percent in November from a year earlier
• The price index for fresh foods fell 2.5 percent from a year earlier, and dropped 7.2 percent from previous month

--With assistance from James Mayger

To contact the reporter on this story: Jiyeun Lee in Seoul at jlee1029@bloomberg.net.

To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, Henry Hoenig

©2017 Bloomberg L.P.