By Jihoon Lee

SEOUL- South Korea’s consumer inflation cooled more than forecast in September and below the central bank’s target for the first time since early 2021, amid growing expectations of an imminent policy easing.

The consumer price index (CPI) rose 1.6 percent in September from a year earlier, after a rise of 2.0 percent in August, data from Statistics Korea showed on Wednesday.

It was weaker than a median 1.9 percent increase tipped in a Reuters poll of economists and marked the weakest annual increase since February 2021.

The reading was below the Bank of Korea’s (BOK) medium-term target of 2 percent and comes amid growing talk among policymakers and market participants about an imminent interest rate cut with the next policy meeting scheduled for Oct. 11.

South Korea’s policy-sensitive three-year treasury bond yield fell on Wednesday by 3.4 basis points to 2.777 percent, the lowest level since April 2022.

Finance Minister Choi Sang-mok and BOK Deputy Governor Kim Woong both said the price stabilization trend was continuing.

“The data once again backed the case for rate cuts,” said Ahn Jae-kyun, a fixed-income analyst at Shinhan Securities, who expects the BOK to lower interest rates next week.

“There is a precedence of the BOK lowering interest rates after seeing inflation coming down to the 1 percent range from 2 percent, but what is different this time is household debt and the central bank’s stance on it,” Ahn said.

The BOK at its last meeting in August held interest rates at a 16-year high of 3.50 percent despite slowing inflation and domestic demand, as board members were concerned about financial stability risks stemming from a hot housing market.

CPI rose 0.1 percent on a monthly basis, also slower than 0.4 percent  in the previous month and 0.3 percent  expected by economists. Prices of petroleum products fell 4.1 percent and private services declined 0.4 percent, offsetting gains in agricultural products and public utilities.

Core CPI, which excludes volatile food and energy items, rose 2.0 percent year-on-year, slower than the 2.1 percent rise the previous month and the weakest since November 2021.-Reuters