Korea inflation to rebound in H2

Korea Inflation came in at 0.7% y/y for July. Similar to June, food inflation remained the key driver on the back of the severe drought which weighed on agriculture output. 

An additional driver, which helped offset the persistent oil drag and added 0.16pp to the headline CPI, was from a 6.5% increase in transport service prices. Unsurprisingly, the drag from lower oil prices persisted in July, with prices of gasoline, gas and LPG remaining subdued. 

"Looking ahead, inflation is expected to gradually rebound in H2 to an average of 1.2% on account of firming services as the shock from the MERS outbreak dissipates. Higher food prices on the back of warmer and drier weather conditions will also help keep inflation supported", says Barclays. 

In addition, a downward adjustment in electricity tariffs deducted a further 0.14pp from the headline rate. All told, there is still no sign of deflation as core inflation held steady at 2.0% y/y. This came from a solid contribution from services inflation, which added 1.14pp to the headline inflation, indicating the threat from the MERS effect on the services economy is clearly subsiding. 

"As such, full year inflation is forecasted at 0.9% for 2015", added Barclays.