Invest2 publishers3 min readPublished
Korea's 2.9% inflation print conceals a 0.4-point pickup once the telecom base effect is removed
South Korean consumer prices rose 2.9% in September, a pace 0.4 points faster than August once last year's telecom-discount base effect is removed. Core inflation is at about its highest this year, and the Bank of Korea sees October near 3%, against a 2% target.
The Investor · Invest desk
What happened
- Discounts SK Telecom gave after last year's hacking incident depressed prices last August, so this August's 3.1% would have been about 2.5% without that base.
- August's core reading of 3.4% falls to around 2.8% once the telecom effect is removed, the same rate core printed in September.
- The government said its price ceiling on oil products lowered September inflation by 0.6 points and that the rate would have been 3.5% without it.
- Agricultural prices fell 4.0%, cutting 0.17 points from the headline, as apples and pears dropped 10.9% on a strong harvest and pre-Chuseok shipments.
- The September figure matched the median forecast in a Reuters poll of economists.
Compiled by The InvestorSomething wrong?How this is made
Why it matters
- constraint Lifting the oil price ceiling would push the published rate toward 3.5%, 1.5 points over the 2% target, so the government is tied to the cap while crude stays high.
- contradiction The Bank of Korea's deputy governor expects October near 3% while a finance ministry official sees the high 2% range, so the two agencies disagree on which side of 3% the next prints land.
- exposure With like-for-like core stuck at 2.8%, any further fall in headline inflation depends on crude and post-holiday farm prices, the two parts the government is managing directly.
If you accept the adjusted August figure, about 0.6 points of the published 3.1% came from last year's telecom discount [1]. September has no such distortion. Seoul Economic Daily puts the like-for-like acceleration at 0.4 points [4]. The monthly series points the same way, with prices up 0.3% in September after 0.2% in August [16]. The Bank of Korea held a price review meeting the same day and said the pace of increases had somewhat widened now that the temporary base effect was gone [5].
The August core reading was inflated by the same amount, about 0.6 points [2]. Adjusted, core did not move between the two months [3]. Seoul Economic Daily still calls 2.8% effectively the year's highest core reading. Processed food rose 2.1%, computers 27.4% on semiconductor component costs, and mobile phones 8.3% after shipment price rises on new models [10][12]. With the adjusted headline up 0.4 points and adjusted core flat, the pickup came from the food and energy items that core leaves out [6].
Those items moved in opposite directions. "Agricultural, livestock, and fisheries prices fell year-on-year for a second consecutive month, supported by targeted government measures ahead of the Chuseok holiday," the finance ministry said in a statement [17]. Inside that group, livestock rose 3.7% and fishery products 4.5% on reduced supply and holiday demand [7]. Fuel is where the two reports differ. Seoul Economic Daily has oil products up 14.8% on higher crude [8]. CNA has petroleum products up 11.8% and diesel up 20.0% [18].
Both fuel figures are measured under the ceiling. Add back the cap's 0.6 points and the 0.17 points that farm prices subtracted, and an unmanaged September comes to roughly 3.7% (assuming the two effects simply add) [5]. Even the managed 2.9% is 0.9 points above the 2% target [4].
The case for sticky inflation could weaken in two ways. Crude could fall far enough that lifting the ceiling adds little to the index. Or the farm price decline, which the ministry credits partly to its own holiday measures, could last beyond Chuseok. The counter-thesis on core is simpler. A core rate of 2.8% two months running is flat, and a central bank could treat a flat core as room to look past a fuel spike it did not cause.
I think the data argue against a Bank of Korea cut soon. The adjusted headline is rising, core is at the year's high, and the government is keeping 0.6 points out of the index through the oil price ceiling [9]. The reports do not cover the policy rate or the bank's guidance on it. An October print in the high 2% range with core below 2.8% would undercut this view.
What to watch
- October's CPI release, and whether core drops below the 2.8% it has held on a like-for-like basis for two months.
- Whether the government extends or lifts the oil price ceiling it credits with taking 0.6 points off September inflation.