By Christine Kim
SEOUL (Reuters) - South Korea's annual inflation was lower in March than expected as low oil prices continued to keep down costs, data on Friday showed, while a sustained rise in services suggested consumption is steadily mending.
The consumer price index gained 1.0 percent in March from a year earlier, Statistics Korea data showed, below a 1.3 percent rise in February. This was faster than a 0.8 percent rise in January this year.
The result lagged a median forecast of 1.3 percent in a Reuters poll, but analysts said falling inflation was likely to be shrugged off by the Bank of Korea when it next reviews policy on April 19.
"In annual terms, oil kept falling so this was expected. In the first half of this year, the central bank is likely to focus more on economic growth and exchange rates compared to inflation," said Chae Hyun-kee, an economist at KTB Securities in Seoul.
"Oil prices will continue affecting inflation through the second quarter."
Month-on-month, the index in March fell 0.3 percent from February, compared with the forecast for no change in the Reuters poll.
Because of the fall in oil prices, inflation for industrial products declined 0.9 percent, the only fall among the sub-indices. In a sign that consumption may be steadily recovering, service prices rose 2.3 percent in March from a year ago, nearly steady from a 2.4 percent gain in February.
Headline inflation has been ticking up shakily from the beginning of the year after it was stuck below one percent through nearly all of last year due to low commodity prices.
It still remains below the central bank's three-year inflation target of 2 percent, giving the bank some room to ease if needed.
Bank of Korea Governor Lee Ju-yeol said earlier this week that although inflation was expected to remain low for a while, it was likely to start picking up in the second half of the year as the effects of low oil prices subsided.
Annual core inflation, which strips out the volatile prices of agricultural and oil products, was 1.7 percent in March from a year ago, compared to 1.8 percent in February.