August Inflation Surprises On The Upside

August CPI was stronger than expected, the m/m outcome was 1.0%, versus 0.6% expected and 0.1% prior. This took the y/y pace to 3.4%, against a 2.9% forecast and 2.3% prior. Core inflation was unchanged from July, printing at 3.3% y/y. GDP Q2 revisions were unchanged (0.6% q/q, 0.9% y/y).

• It was expected that the y/y pace would rebound, as 2022 inflation base effects became less favorable. Still, this was clearly stronger than expected.
• The m/m gain was led by food +2.9% and transport +3.8%, with both categories recording decent rises versus July. Other categories saw less inflation but mostly positive gains.
• In y/y terms, transport inflation was -2.5%, versus -10.7% prior. Food inflation rose to 4.9% y/y, versus 3.4% prior. Other trends were mixed, but most other categories saw their respective y/y pace hold close to July levels.
• Core inflation held steady at 3.3% y/y, ending the recent run of waning y/y momentum for this index.
• Food inflation trends may improve in the coming months, but today's data is likely to leave the BoK, at the very least, pushing back against rate cut expectations and potentially leaving the door ajar for further tightening.

Fig 1: South Korean Headline & Core CPI Y/Y

Source: MNI - Market News/Bloomberg