South Korea’s headline and core inflation likely rebounded in February

South Korea's core and headline inflation, in year-on-year terms, is expected to have rebounded in February. Retail oil prices will continue to drop for the eighth continuous month; however the year-on-year inflation is expected to rise due to base effects. Agricultural goods prices, including fresh food, increased due to the Lunar New Year holidays. Other sectors, such as non-oil manufacturing goods, public and personal services, and housing rents are expected to have had a steady inflation that will be seen in the moderate rise in core inflation.

"We continue to expect a further rise in headline inflation towards the 2% level until the end of this year, under the assumption of a significant rebound in crude oil prices in H2", says Societe Generale.

Core inflation is expected to continue at current levels throughout 2016. For the time being, headline inflation is expected to be below the Bank of Korea's inflation target of 2%. Nevertheless, the low headline inflation is not likely to be the main trigger for the central bank to lower rates as long as core inflation continues to be steady at the current level.