Korea inflation to stand pat at 1.5%

Good thing is that surge in global grain prices will not be reflected soon.

According to DBS, headline CPI inflation is expected to remain low and stable at 1.5% YoY. The base effects for food prices have remained favourable in August. The surge in global grain prices is unlikely to be reflected in local food prices so soon. The year-on-year growth in import food prices has just turned positive in July. And according to historical experiences, it normally takes 3-4 months for the rise in import food costs to be reflected in CPI food prices.

Here's more from DBS:

Meanwhile, the inflationary impact of the electricity price hike in August should be mild. The government capped the SEOUL electricity price increase at 4.9%, far less than the 13.1% initially proposed by the state-run power supplier KEPCO. The rise in electricity prices is expected to lift CPI growth by a modest 0.1ppt (MoM sa) in August.

As inflation numbers are benign and growth data continue to produce concerns about economic slowdown, the Bank of Korea is expected to cut rates by another 25bps at the next policy meeting on September 13th.