South Korea’s Inflation Accelerates to Fastest Since 2017

South Korea’s inflation accelerated in April to the fastest pace since 2017, aided by a favorable base effect amid a broadening economic recovery.

Inflation rose to 2.3% in April, data from the statistics office showed Tuesday, rapidly increasing from the 1.5% gain in March. Economists expected consumer prices to rise 2.1% from a year earlier.

The inflation boost was driven by rising commodity and energy prices, which had plunged during the same period a year earlier when the pandemic spread across the world. Rising consumer demand and confidence amid an economic recovery are also favorable for prices.

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Bank of Korea Governor Lee Ju-yeol said last month that inflation will likely fluctuate around 2% — the central bank’s target — in the current quarter before moderating. Lee has sought to tamp down speculation for an early policy tightening, pledging to keep policy accommodative.
Last month’s inflation outcome was boosted by the weak reading in April 2020, when prices rose just 0.1% from a year earlier. Such favorable base effects will remain in play for the coming months.
South Korea’s gross domestic production surpassed its pre-virus peak in the first quarter, a milestone not yet reached in most economies. That prompted a string of outlook upgrades by analysts, with Goldman Sachs (NYSE:GS) and JPMorgan (NYSE:JPM) both seeing more than 4% growth for 2021. Korean consumers are also becoming more optimistic.
Justin Jimenez, an economist at Bloomberg Economics, expects slack in the labor market to put a cap on inflation pressures. South Korean employment is still below the pre-virus level as the service sector remains under pressure.
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Compared with the previous month, consumer prices rose 0.2 % in April.
South Korea’s core inflation came in at 1.4%, versus the prior year.
Prices for foods and non-alcoholic beverages rose 8.1% from a year earlier; costs of transportation increased 6.4%; inflation for restaurants and hotels reached 1.8%.