Korean inflation – it’s still really low
The headline on Korea’s November CPI release is that it had returned to positive growth. Well, yes, if the year-on-year comparison is all you are concerned about. At 0.2%YoY, it is higher than the 0.0% inflation rate recorded for October. But prices still fell 0.6% from the previous month – core prices fell too from the previous month, and here, the inflation rate did fall, dropping back to 0.6% from 0.8%, back to where it was in September.
There aren’t any smoking guns in the component breakdown to account for the November weakness. Rather, a welter of weak numbers including those for communication, recreation, transport, furnishings and food all weighed on the price level, with very minor increases in clothing insufficient to do more than offset a small fraction fo the declines.
On the face of it, next month provides a helpful base effect to help inflation rise. But that was really all that happened this month, as last November saw prices fall at their fastest all year by 0.7%MoM, and there is no guarantee that December’s prices will not match or undershoot last Decembers 0.3% mom decline.
We don’t feel the Bank of Korea is prepped for further easing of rates. But if the inflation numbers remain bogged down around zero, and growth fails to pick up meaningfully, then we may need to review this perspective.
Talking of growth, or rather the lack of it, export data released over the weekend showed a further sharp decline in November exports of 14.3%YoY. That said, the comparison with one of the peak months of exports last year is not a helpful one. If you back out the nominal export value from the year-on-year figures and compare it with recent months, it is still broadly consistent with flatlining exports, rather than exports in ongoing decline.