South Korea's slowest inflation in 10 months bolsters views for no more hikes

Shoppers and pedestrians pass by shops in Seoul's Myeongdong shopping district, South Korea.

South Korea's February consumer inflation was at its lowest level in 10 months. This supports the view that the central bank has ended its current tightening cycle. Rates remained steady last month, but this is not the case.

Asia's fourth largest economy is on the brink of recession. Policymakers should be cautious about tightening their belts in the face slowdowns in global growth and increased demand from overseas for major exports like chips and consumer electronics.

The consumer price index rose 4.8% in February from a year before, Statistics Korea data showed on Monday, easing from January's 5.2%. It was below the 5.1% tipped in a Reuters poll, and was also the lowest rate since April 2022.

"It was encouraging that the rising pace of private service prices slowed, lowering the possibility of additional rate hikes by the central bank, at least on the domestic side," said Ahn Jae-kyun, a fixed-income analyst at Shinhan Securities.

Annual core inflation, which excludes volatile food and energy prices, inched down to 4.0%, from 4.1% a month before, and hit the lowest since August, suggesting easing underlying price pressure.

The Bank of Korea said in a statement after the CPI release that the February data came in as expected and that the inflation rate would fall significantly in March and continue easing this year, but still hold above its mid-term 2% target.

The BOK held interest rates steady last month, after a year of uninterrupted hikes, and said the monetary tightening campaign would not resume if inflation followed an expected path towards moderation.

Data out last week showed South Korea could be headed for a recession, with persistently weak exports and domestic retail sales, after a 0.4% contraction last quarter.

By product category, prices of livestock products fell 3.2% from the previous month and petroleum products slid 1.3%, dragging the inflation rate lower.

The inflation index rose 0.3% on a monthly basis, compared with 0.8% in the previous month and 0.5% expected by economists.

Finance Minister Choo Kyung-ho separately said that the inflation slowdown would become clearer in coming months, unless there were an external shock.

The South Korean three-year treasury bond futures rose as much as 0.24 points to 103.49 during the morning session, also helped by a fall in U.S. Treasury yields over the weekend.