Consumer inflation for South Korea hit a 24-year high in July, according to data in early August, although other figures suggest the price increase may be peaking.
Reuters reported that the signs of economic slowdown has caused bond yields to fall.
Bond yields also tumbled due to a comment by the central bank, saying that the annual inflation rate pickup from 6% in June to 6.3% in July was anticipated when it raised its interest rates in July.
The Consumer Price Index (CPI) rose quickest in July since late 1998, matching the median forecast in one of Reuters’ surveys.
The core CPI, which excludes food and energy costs, concluded a three-month run of consecutive acceleration, indicating underlying price pressure peaked.
“It was encouraging that inflation was as expected,” said Kang Seung-won, a fixed-income analyst at NH Investment and Securities, regarding the inflation performance that exceeded market expectations over the recent months.
Local government bond yields had decreased across the board on Aug 2, where the benchmark 10-year yield tumbled by 12.1 basis points to 3.065%. The figure is 78.2 basis points less than the 2022 peak set that happened in late June of this year.
“South Korea’s price trend is significantly driven by the foreign exchange rate as well as global oil prices, with both currently stabilising or falling,” Kang stated, highlighting that the dollar to won rate is presently 1% lower than it was several weeks ago.
The central bank issued a statement that the inflation rate was as expected, but only caused a subtle change in its public assessment of economic conditions.
The rate of consumer inflation had remained at the 6% range in July, in line with the last monetary policy meeting’s expectations in mid-July, said the central bank’s deputy governor Lee Hwan-seok in a statement.
The statement further encouraged bets that the Bank of Korea’s policy would gradually move to assisting the economy in the near future, if not immediately.
Price pressure peaking
Following the July 13 monetary policy meeting, Korea’s central bank hiked its interest rates by 50 basis points.
Results of a monthly survey by S&P Global showed purchasing managers at South Korea’s manufacturing companies demonstrate the price pressures peaking.
With inflation concerns easing, the market attention is swiftly shifting to mounting signs of the economy losing momentum. Being the fourth-largest economy in Asia, the economy is experiencing declining global demand for its exports and their consumers are becoming less keen on future spending.
Meanwhile, a central bank study shows a decline in manufacturers’ expectations for capital spending.
Although the exports for July increased by 9.4% on a year earlier in dollar value, in terms of volume, the numbers had declined as compared to June.
Moreover, the latest monthly central bank survey index showed consumer sentiment dipped in July by the largest margin in 28 months, to its lowest in 22 months.
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