South Korea's February inflation pulls back, demand seen slack

South Korea's inflation slowed slightly in February from the previous month as price pressures stayed largely muted, data showed on Friday, giving the central bank some space to cut rates if needed amid growing economic risks. The consumer price index in February rose 1.9 percent from a year earlier, Statistics Korea said, slightly easing from a 2.0 percent rise in January that was a more than a 4-year high.
From a month earlier, the index rose 0.3 percent in February, compared with a 0.9 percent gain in January.
A Reuters poll had forecast February annual inflation at 1.6 percent and monthly inflation at 0.1 percent.
Analysts at ANZ Bank said in a research note that headline inflation was expected to moderately rise but core inflation would likely be subdued due to limited demand pull pressures.
"We also note that despite rising producer prices, the corporate sector has been unable to pass on increases in input costs to the consumers. Thus, we still see room for the Bank of Korea to cut interest rates further in 2017," ANZ said.
A majority of analysts see no change in the Bank of Korea's policy rate for the rest of the year as uncertainties remain high inside and outside the country. However, some economists have noted if it were not for political challenges, the state of the economy could use a boost from lower rates.
The finance ministry said in a statement that price pressures would remain higher than the government initially expected for a while, but base effects from changes in global oil prices were expected to ease after March.
Transport prices rose, contributing to the bulk of the increase in headline inflation.
Core inflation, which strips out volatile food and fuel prices, stayed level from 1.5 percent in the previous month.
Although inflation hit the central bank's target of 2 percent in January, the Bank of Korea has said inflation is unlikely to accelerate sharply from that level as the recovery in consumption is still soft.
In February's report, inflation for culture and entertainment spending stood at 1.1 percent in annual terms, the softest since April last year. Education inflation also eased to 1.3 percent, the slowest since February 2014.
With the risks of weak private consumption, the central bank said after its policy meeting last week it would keep its policy accommodative for now, keeping the base rate at a record-low 1.25 percent for an eighth straight month in February.