| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| CPI - M/M | 0.1% | 0.1% to 0.1% | -0.1% | 0.1% |
| CPI - Y/Y | 2.1% | 2.1% to 2.1% | 1.9% | 2.1% |
| Core CPI - M/M | 0.2% | 0.4% | ||
| Core CPI - Y/Y | 2.0% | 2.1% |
Highlights
South Korea's headline consumer price index rose 1.9 percent on the year in May, moderating from an increase of 2.1 percent in April. This is the lowest level of core inflation so far this year. The index fell 0.1 percent on the month after increasing 0.1 percent previously.
Underlying inflation also eased in May. Core CPI, excluding food and energy, rose 0.2 percent on the month after a previous increase of 0.4 percent, with the year-over-year increase slowing from 2.1 percent to 2.0 percent.
Lower core inflation reflects more subdued price increases for health, clothing, education, and communication. Transport costs fell 1.3 percent on the year in May after dropping 0.4 percent in April, while the year-over-year increase in housing, utilities & fuel costs rose slightly from 1.8 percent to 1.9 percent. Food price inflation slowed from 3.0 percent to 2.4 percent.
At its most recent meeting, held last week, the Bank of Korea cut its main policy rate by 25 basis points to 2.50 percent, in line with the consensus forecast. In the statement accompanying that decision, officials expressed confidence that inflation will remain stable and close to their target level. Officials, however, revised down their growth forecasts, largely reflecting the impact of global trade tensions. They also advised that they maintain a rate cut stance, with the timing and pace of additional easing to be guided by incoming data.
Underlying inflation also eased in May. Core CPI, excluding food and energy, rose 0.2 percent on the month after a previous increase of 0.4 percent, with the year-over-year increase slowing from 2.1 percent to 2.0 percent.
Lower core inflation reflects more subdued price increases for health, clothing, education, and communication. Transport costs fell 1.3 percent on the year in May after dropping 0.4 percent in April, while the year-over-year increase in housing, utilities & fuel costs rose slightly from 1.8 percent to 1.9 percent. Food price inflation slowed from 3.0 percent to 2.4 percent.
At its most recent meeting, held last week, the Bank of Korea cut its main policy rate by 25 basis points to 2.50 percent, in line with the consensus forecast. In the statement accompanying that decision, officials expressed confidence that inflation will remain stable and close to their target level. Officials, however, revised down their growth forecasts, largely reflecting the impact of global trade tensions. They also advised that they maintain a rate cut stance, with the timing and pace of additional easing to be guided by incoming data.
Market Consensus Before Announcement
Seen up the same 0.1 percent on the month and 2.1 percent on year for May versus increases of 0.1 percent and 2.1 percent in April.
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.
