| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| CPI - M/M | 0.3% | 0.2% to 0.3% | 0.3% | 0.7% |
| CPI - Y/Y | 1.9% | 1.8% to 2.0% | 2.0% | 2.2% |
| Core CPI - M/M | 0.1% | 0.5% | ||
| Core CPI - Y/Y | 1.8% | 1.9% |
Highlights
South Korea's headline consumer price index rose 2.0 percent on the year in February, down from an increase of 2.2 percent in December. The index rose 0.3 percent on the month after increasing 0.7 percent previously.
Underlying inflation also eased slightly in January. Core CPI, excluding food and energy, rose 0.1 percent on the month after a previous increase of 0.5 percent, with the year-over-year increase moderating from 1.9 percent to 1.8 percent. Core CPI inflation has been at 1.8 percent or 1.9 percent for the last five months.
Lower headline inflation was largely driven by a fall in food price inflation from 2.4 percent to 2.0 percent. Transport costs also rose at a slower pace, up 2.2 percent on the year in February after an increase of 3.3 percent in January, whereas the year-over-year increase in housing, utilities & fuel costs increased slightly from 1.8 percent to 2.0 percent. Price increases in other categories were generally steady.
At its most recent meeting, held last week, the Bank of Korea lowered its main policy rate by 25 basis points from 3.00 percent to 2.75 percent at its policy meeting held today, in line with the consensus forecast. This is the third rate cut in the last four meetings. In the statement accompanying the decision, officials expressed confidence that inflation will remain stable, retaining their forecast for annual headline inflation to be 1.9 percent this year and for annual core inflation to be 1.8 percent. Officials, however, are now less confident about the growth outlook. Officials concluded that the weaker growth outlook warranted another rate cut in order to"mitigate downward pressure on the economy" and also signalled that additional policy loosening will be considered in upcoming meetings.
Underlying inflation also eased slightly in January. Core CPI, excluding food and energy, rose 0.1 percent on the month after a previous increase of 0.5 percent, with the year-over-year increase moderating from 1.9 percent to 1.8 percent. Core CPI inflation has been at 1.8 percent or 1.9 percent for the last five months.
Lower headline inflation was largely driven by a fall in food price inflation from 2.4 percent to 2.0 percent. Transport costs also rose at a slower pace, up 2.2 percent on the year in February after an increase of 3.3 percent in January, whereas the year-over-year increase in housing, utilities & fuel costs increased slightly from 1.8 percent to 2.0 percent. Price increases in other categories were generally steady.
At its most recent meeting, held last week, the Bank of Korea lowered its main policy rate by 25 basis points from 3.00 percent to 2.75 percent at its policy meeting held today, in line with the consensus forecast. This is the third rate cut in the last four meetings. In the statement accompanying the decision, officials expressed confidence that inflation will remain stable, retaining their forecast for annual headline inflation to be 1.9 percent this year and for annual core inflation to be 1.8 percent. Officials, however, are now less confident about the growth outlook. Officials concluded that the weaker growth outlook warranted another rate cut in order to"mitigate downward pressure on the economy" and also signalled that additional policy loosening will be considered in upcoming meetings.
Market Consensus Before Announcement
The consensus sees CPI up 0.3 percent on the month and 1.9 percent on year.
Definition
The Consumer Price Index (CPI) is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Annual changes in the CPI represent the rate of inflation.
Description
An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets and your investments.
Inflation (along with various risks) basically explains how interest rates are set on everything from mortgages and auto loans to government securities. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
Inflation (along with various risks) basically explains how interest rates are set on everything from mortgages and auto loans to government securities. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
