South Korea December Inflation Eases, Gives Room for More Easing

Korean Won.jpg

South Korean inflation eased in December further below the central bank's target, data showed on Monday, reflecting weak demand and giving the Bank of Korea room for more interest rate cuts to spur growth.

The consumer price index rose 1.4 percent in December from a year earlier, Statistics Korea data showed, down from a 1.6 percent gain in November and compared with the median 1.5 percent gain forecast in a Reuters survey of analysts.

This was the 10th consecutive month in which annual inflation stood below the Bank of Korea's 3 percent target as Asia's fourth-largest economy cooled due to the euro zone's fiscal crisis and slowing demand elsewhere.

The Bank of Korea already pledged last week to focus its policy on supporting economic growth "for the time being" because the anticipated recovery in the local economy would fall short of the desired pace.

(Read More: Why Bank of Korea's Work Is Done for the Year)

The central bank cut its base rate twice this year, in July and October, by 25 basis points each to 2.75 percent to shore up the economy in the face of global hardships, taking the rate to the lowest level since early 2011.

From a month earlier, the consumer price index rose 0.2 percent in December after a 0.4 percent decline in November. The Reuters survey tipped a median 0.3 percent monthly rise.

Monday's data showed the annual average inflation for the whole of 2012 stood at 2.2 percent, significantly lower than 4.0 percent last year and the slowest since 2006. The central bank in October had projected inflation for the year to be 2.8 percent.

Public transportation, utilities and fresh produce led gains in consumer prices, but lower childcare and education-related costs stemming from the government's expanded welfare policies offset such price gains.

Annual core inflation, which strips out volatile food and fuel prices, edged down to 1.2 percent in December from 1.3 percent in November. For the full year, core inflation stood at an average of 1.6 percent, substantially below 3.2 percent in 2011 and marking the slowest rate since 1999.