Korea - June CPI

Korean CPI inflation rose again in June to 6% YoY, higher than the previous recent peak in 2008. MoM momentum at a headline level softened a touch, but core CPI continued to accelerate. That reflects a furthering of the shift in the drivers of inflation: goods price inflation softened in June, but private services inflation continued to accelerate strongly.

Pricing in the BOK's business confidence survey has been softening for a few months now, and in recent cycles that would have indicated that overall inflation would be peaking. It does seem reasonable to think that the upwards momentum of overall inflation won't continue to accelerate as it has done in recent months. The risk this time is that the BOK survey, by focusing on pricing in the manufacturing sector, is only capturing trends in commodity prices. As a result, it is not giving due weight to the ongoing hikes in prices in non-manufacturing and services.

Inflation will be high enough at least through Q3 to remain the clear number one theme for the BOK. Beyond that, and some more uncertainty is starting to appear. On the one hand, services inflation is likely to remain high. But on the other, growth is likely to becoming more of a concern for the BOK, given recent signs that the semiconductor cycle is cracking. That hasn't shown up in the Korean macro data yet, but if it persists, export growth and business sentiment will start to look much weaker.