S.Korea Aug inflation hits record low, 2Q GDP downgraded

Credit: REUTERS/LEONHARD FOEGER

South Korea's year-on-year inflation in August dipped to an all-time low as farm product prices plunged on improved weather and consumer demand remained weak, strengthening the case for another central bank rate cut as early as next month.

By Choonsik Yoo and Joori Roh

SEOUL, Sept 3 (Reuters) - South Korea's year-on-year inflation in August dipped to an all-time low as farm product prices plunged on improved weather and consumer demand remained weak, strengthening the case for another central bank rate cut as early as next month.

The consumer price index was unchanged in August from a year earlier, Statistics Korea data showed on Tuesday, missing a 0.2% rise tipped in a Reuters survey and marking the lowest since the country began releasing inflation data in 1965.

Separately, the Bank of Korea (BOK) on Tuesday revised down the economic growth for the April-June period to 1.0% on-quarter from a 1.1% gain reported earlier, citing weaker exports than estimated earlier.

The weak inflation and economic growth data add to concerns about a deflation risk for Asia's fourth-largest economy, despite assurances from top policymakers that inflation would soon pick up to 1%.

"We are not in a deflation situation yet, but over the medium term, we need to start thinking about deflation as we have more and more data showing weakness," said Oh Chang-sob, fixed-income strategist at Korea Investment & Securities.

The inflation and economic growth data was released before local financial markets opened.

Last week, the BOK kept the benchmark interest rate KROCRT=ECI steady at 1.50% but kept the door open for what would be the second rate cut this year after a surprise easing in July.

The inflation data comes after recent batches of grim data, such as figures that showed the nation's exports tumbled for a ninth consecutive month in August.

(Reporting by Choonsik Yoo, Joori Roh; Editing by Sam Holmes)

((joori.roh@thomsonreuters.com; +82 2 6936 1493))

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