South Korea’s headline inflation likely to have recovered modestly in June

South Korean headline CPI inflation is expected to have recovered modestly on a year-on-year basis. However, it is likely to continue to be at very low level – below 1 percent, said Societe Generale in a research report. On a sequential basis, inflation is expected to have accelerated 0.2 percent, mostly due to increase in oil prices.

An increase in meat prices, housing rents and non-oil manufacturing goods are expected to counter the drop in fresh food prices, particularly vegetables, and personal services prices.  The decline in fresh food and personal services prices is mainly because of seasonal factors, noted Societe Generale.

Meanwhile, core inflation is also expected to remain at a low level of 1.6 percent. South Korea’s headline inflation is likely to accelerate towards 2 percent in the second half of 2016 with the help of recovered oil prices, according to Societe Generale. However, persistent inflation print, particularly core inflation, indicates that there are still risks on the downside to inflation that underpins the view that the Bank of Korea is expected to further cut rates by 25 basis points in the third quarter.