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Jan 03 2013

Bank of Korea Receives Mixed Signals

ECRI has just updated its Korean Future Inflation Gauge (KOFIG). The value of this forward-looking gauge lies in its ability to predict cyclical turns in Korean inflation.

Korean inflation declined to 1.4% in December, a four-month low. While the Bank of Korea (BoK) cut rates twice in 2012, inflation remains well below the BoK’s recently tightened target band of 2.5% to 3.5%, which some analysts see as an opportunity for further monetary easing. However, with industrial output expanding for the third consecutive month and the current-account surplus reaching a record high in November, the effects of Korea’s earlier stimulus may already be taking hold.

The latest update to the KOFIG clarifies the future trajectory of Korean inflation, indicating whether the BoK’s earlier cuts will boost inflation, or if more easing will be necessary.

Update: The KOFIG slipped in November and is virtually at a 39-month low. Thus, Korean inflation pressures are quite weak.

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