Economist at UOB Group Ho Woei Chen, CFA, comments on the recently published inflation figures in South Korea.
Key Takeaways
“South Korea’s headline and core inflation accelerated in Mar with the former above 4% for the first time since Dec 2011. The trajectory of the domestic inflation suggests that the headline inflation rate will stay at around 4% until 3Q22 and full-year inflation will thus far exceed our forecast of 3.3% for 2022 (2021: 2.5%).”
“As BOK Governor-nominee Rhee Chang-yong may not be confirmed by the upcoming rate meeting on 14 Apr, there is likelihood that the BOK will resume its rate hike in May instead. We maintain our call for another 50 bps rate hike this year, 25 bps hike each in 2Q and 3Q to bring the base rate to 1.75% by 3Q. The higher inflation risk may warrant a further 25 bps increase in 4Q (not in our base case yet).”
“Energy imports including coal, crude oil, petroleum and LNG have increased sharply since 2021 to account for around 25% of South Korea’s total import costs. With its net energy imports up sharply due to costlier oil, this has placed South Korea’s external balances under pressure.”
“The positive domestic outlook remains largely intact for now, underpinned by easing COVID-19 measures as well as the government’s temporary job creation that lifted employment in public services, health care and social services. South Korea is planning an extra budget after President elect Yoon Suk-yeol takes office in May. This would support further growth recovery in the country and we are maintaining our GDP growth forecast for South Korea at 3.0% this year (2021: 4.0%).”
