Bank of Korea sees inflation near 3 percent as base effects fade

The Bank of Korea said Friday that September inflation slowed to 2.9 percent from a year earlier, but warned price pressures were modestly widening once a temporary statistical effect is stripped out.

Speaking at a meeting on inflation conditions, Deputy Governor Lee Ji-ho said the decline across consumer, core and living-cost measures overstated the improvement, because the favorable base effect from last year's telecommunications fee discounts had run its course. "Considering that the temporary base effect from the previous month has disappeared, the upward trend in prices is assessed to have widened somewhat," Lee said.

Consumer price inflation eased from 3.1 percent in August, while core inflation, which strips out food and energy, fell to 2.8 percent from 3.4 percent. The living-cost index, which tracks everyday staples, slipped to 2.5 percent from 3.2 percent.

Lee said October consumer inflation would stay high, at around 3 percent, as core items continue to climb. He said the bank would keep monitoring price conditions with vigilance, citing high uncertainty related to the Middle East war and the expected pass-through of cost shocks and widening demand-side pressure.

The central bank attributed the September slowdown largely to public service fees, where the fading telecommunications discount dropped the increase to 1.5 percent from 6.5 percent a month earlier. Oil product prices rose 14.8 percent, little changed from 14.2 percent in August.

Agricultural, livestock and fisheries prices were down 0.3 percent, narrowing their decline from 2.6 percent the previous month after poor growing conditions hit some vegetables. The Bank of Korea's inflation meeting was chaired by Lee and attended by the head of the research bureau, the head of the economic statistics bureau, the macroeconomic forecasting chief, the inflation and employment chief and the inflation trends team leader.