SEOUL – South Korea’s consumer inflation picked up in December but its full-year reading set a record low as consumer demand remained shaky, reinforcing expectations that the central bank will need to cut interest rates again next year.
The consumer price index rose 0.7% in December from a year earlier, the statistics agency said on Tuesday, up sharply from a 0.2% rise in November and slightly faster than a median 0.6% gain tipped in a Reuters survey.
Still, the average rate of inflation for all of 2019 came to a record-low 0.4%, compared with 1.5% in 2018, as pessimistic consumer and corporate demand as well as good weather conditions pressured price growth across the board.
The annual inflation rate falls far below the central bank’s target of 2% and although the Bank of Korea expects inflation to rise to 1% next year, the outlook remains weak with the economy headed for only a modest recovery.
“The fading effects from the low price levels and a likely economic recovery will help boost inflation next year but I think the low inflation pattern will persist for a while,” said Park Sang-hyun, chief economist at Hi Investment & Securities.
The Bank of Korea cut its key policy rate <KROCRT=ECI> twice this year by a combined 50 basis points to a joint-record low of 1.25%, joining the global easing trend, to support cooling domestic demand and growth.
The government aims to boost fiscal spending by a whopping 9.1% next year to support the economic recovery even as the fiscal deficit widens, but analysts said the central bank may need to help by further cutting interest rates.
South Korea’s financial markets are closed on Tuesday and Wednesday to mark the change of the year and will resume trading on Thursday.
(Reporting by Joori Roh; Editing by Kim Coghill and Sam Holmes)