South Korean core and headline inflation are expected to have remained weak in August. Oil prices and fresh food, which are the two non-core components of the headline inflation, are expected to have countered each other, noted Societe Generale in a research report. Prices of vegetables seem to be increasing because of seasonal patterns, while retail oil prices are falling due to a temporary drop in crude oil prices and the strengthening of the Korean won.
South Korea’s core inflation is expected to have remained stable at 0.2 percent, as both core goods and services inflation maintain their recent stable performance. Even if in recent days crude oil prices have recovered, the possibilities that actual inflation surpasses the Bank of Korea’s official forecasts in the second half of 2016 are increasing, added Societe Generale.
The Bank of Korea projects inflation to reach 1.3 percent in the second half of this year, while core inflation is anticipated to reach 1.9 percent. However, Societe Generale, in its research note stated that the headline and core inflation are expected to remain at 0.7 percent and 1.6 percent respectively for the initial two months of the second half of 2016.
“We continue to expect a significant rise in headline inflation towards the end of this year due to the base effects of oil prices”, added Societe Generale.