(Bloomberg) -- South Korea’s inflation accelerated in April to the fastest pace since 2017, aided by a favorable base effect amid a broadening economic recovery.
Inflation rose to 2.3% in April, data from the statistics office showed Tuesday, rapidly increasing from the 1.5% gain in March. Economists expected consumer prices to rise 2.1% from a year earlier.
The inflation boost was driven by rising commodity and energy prices, which had plunged during the same period a year earlier when the pandemic spread across the world. Rising consumer demand and confidence amid an economic recovery are also favorable for prices.
Key Insights
- Bank of Korea Governor Lee Ju-yeol said last month that inflation will likely fluctuate around 2% -- the central bank’s target -- in the current quarter before moderating. Lee has sought to tamp down speculation for an early policy tightening, pledging to keep policy accommodative.
- Last month’s inflation outcome was boosted by the weak reading in April 2020, when prices rose just 0.1% from a year earlier. Such favorable base effects will remain in play for the coming months.
- South Korea’s gross domestic production surpassed its pre-virus peak in the first quarter, a milestone not yet reached in most economies. That prompted a string of outlook upgrades by analysts, with Goldman Sachs (NYSE:GS) and JPMorgan (NYSE:JPM) both seeing more than 4% growth for 2021. Korean consumers are also becoming more optimistic.
- Justin Jimenez, an economist at Bloomberg Economics, expects slack in the labor market to put a cap on inflation pressures. South Korean employment is still below the pre-virus level as the service sector remains under pressure.
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- Compared with the previous month, consumer prices rose 0.2 % in April.
- South Korea’s core inflation came in at 1.4%, versus the prior year.
- Prices for foods and non-alcoholic beverages rose 8.1% from a year earlier; costs of transportation increased 6.4%; inflation for restaurants and hotels reached 1.8%.
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