South Korean inflation rises at fastest pace in almost a year

The consumer price index in South Korea rose 0.9 per cent in October from a year earlier, Statistics Korea said on Tuesday (Nov 3).
The consumer price index in South Korea rose 0.9 per cent in October from a year earlier, Statistics Korea said on Tuesday (Nov 3).PHOTO: BLOOMBERG

SEOUL (BLOOMBERG) - Inflation in South Korea unexpectedly increased at the fastest pace in almost a year as domestic consumption and industrial production improved.

The price gains help back the government's assessment that the economy is in a "turn-around" from the effects of an outbreak of a respiratory illness earlier this year that scared away shoppers and foreign tourists.

The consumer price index rose 0.9 per cent in October from a year earlier, after a 0.6 per cent advance in September, Statistics Korea said on Tuesday (Nov 3). That was the strongest number since November last year and beat the median estimate of 0.7 per cent in a Bloomberg survey. The price gauge was unchanged from a month earlier.

"Improving private consumption is the main driver for the economy and accelerating price gains," LG Economic Research Institute economist Shin Min Young said before the data was released. "By next year, South Korean inflation should well be above 1 per cent."

Asia's fourth-largest economy expanded 1.2 per cent in the three months through September. That was the fastest pace since 2010 and significant improvement from 0.3 per cent in the previous quarter.

Despite the pickup in prices in October, inflation is still well below the central bank's target of 2.5 per cent to 3.5 per cent, and has been since late 2012.

The Bank of Korea is talking with the government about a revised target, to start in 2016, with economists surveyed by Bloomberg projecting the midpoint to be revised to 2.5 per cent from the current 3 per cent.

The central bank in October cut its estimates for inflation this year and next and left the benchmark interest rate unchanged at a record low 1.5 per cent.