Korea's inflation eyed to stick to 1.9%

The economy must not worry about inflation anyway, says anaylst.

According to DBS, inflation data for October are due tomorrow. The year-on-year CPI inflation is projected to stay stable at 1.9%, compared to 2.0% in September.

Here's more from DBS:

In month-on-month (nsa) terms, consumer prices should show a pullback after the sharp rise of 0.7% in the previous month, as the distortion impact on food prices resulting from September’s typhoons and the Chuseok festival has dissipated.

Inflation shouldn’t be a problem in the near term. The economy’s output gap is expected to remain negative until mid-2013. Despite the likelihood of higher commodity prices in the context of QE3, the expected appreciation in Asian currencies should help to keep imported inflation at relatively stable levels.

The won gained 1.8% against the US dollar in October, the best performing currency in the region. Technically, however, the year-on-year inflation numbers may rise notably to 2.5% starting from 2Q13.

The low base effects will kick in around March 2013, taking into account the declines in certain services prices since March this year as a result of the government’s subsidy policy. With the benchmark interest rate standing at 2.75% currently, the room for further rate cuts is limited. After lowering rates by a modest 50bps in Jul-Oct, the Bank of Korea is expected to stay on hold in the next six months.