Inflation Momentum Easing But Core Still Elevated

South Korea headline May CPI came in a touch weaker than expected in y/y terms, 3.3% versus 3.4% forecast and 3.7% prior. Y/Y momentum is now back to late 2021 lows. The m/m was in line with expectations, 0.3%, versus 0.2%. Encouragingly for the authorities, core inflation stepped down to 4.3% y/y, from 4.6% prior (there is no consensus estimate for core). This measure is comfortably off Jan highs of 5.00%, although base effects likely aided the move.

• Core prices which exclude both food and energy prices eased to 3.9% in y/y terms, a 10 month low, but only slightly below the 4.0% pace in April.
• Looking at the detail, agricultural prices rose 0.5% m/m, utility prices surged 2.2%, but offset came from petrol related products down 1.4%.
• At face value this data may temper the need for further BoK action, with last month's policy meeting holding rates steady, but with a hawkish bias. A critical issue is likely to be whether core inflaiton is cooling fast enough.
• Other data showed Q1 GDP revisions were nudged up to 0.9% y/y, (0.8% expected), while the initial q/q estimate was left unchanged at 0.3%. Slightly better consumption and construction investment, offset a larger drag from business investment.

Fig 1: South Korea CPI Continues To Trend Lower

Source: MNI - Market News/Bloomberg