Bank of Korea Governor Lee Ju- yeol previewed this last month, but it’s still well worth mentioning: Inflation has fallen to zero in South Korea.
August CPI was unchanged YoY, against estimates for a 0.2% uptick.
It was the lowest reading in history or, more accurately, the lowest since 1965, when the country started releasing inflation data.
Last week, Governor Lee said it’s conceivable the country could see negative inflation for a couple of months, but contended that the risk of deflation is low. Any negative readings would be temporary, the BoK said, a line the bank parroted on Monday.
Inflation should bounce quickly “around” the end of this year, the BoK remarked, in a statement, adding that recent low inflation is attributable to supply-side factors as well as government welfare policies. “It’s hard to say it’s a precursor of deflation”, the bank insisted.
Meanwhile, Q2 GDP was revised lower. The economy expanded 2% in the second quarter, versus 2.1% in the previous estimate.
In July, the BOK slashed its economic forecasts in the course of cutting rates, and exports remain in a tailspin. Data out over the weekend showed exports falling 13.6% in August. That marked the ninth straight month in contraction. The country has struggled mightily in the face of global trade frictions. Jitters about a turning of the semi cycle have made things worse. Early last month, the Kospi garnered the dubious distinction of becoming the worst-performing major equity benchmark in the world.
The worsening diplomatic spat with Japan is just insult to injury.
The BoK held off on another rate cut last week, but flat-lining inflation should help make the case for additional accommodation going forward. “There is some room in monetary policy to respond to economic situations if necessary”, Governor Lee told reporters on Friday, following the decision to hold off on further cuts for now.
If you’re looking for one chart that sums up the current market zeitgeist, you could well cite the ratio of the Kospi to the US Treasury ETF, which is sitting near a post-crisis low.
