South Korea inflation weakest in almost 4 years, sets stage for more rate cuts

SEOUL (Reuters) - South Korea's October headline inflation slowed further to the weakest level in almost four years, data showed on Tuesday, strengthening the case for more interest rate cuts and fueling worries of an undershoot of the Bank of Korea's 2% target.

The consumer price index rose 1.3% in October from a year earlier, after an increase of 1.6% in September, Statistics Korea data showed, marking the slowest annual increase since January 2021.

That was weaker than a median 1.4% increase tipped in a Reuters poll of economists.

Declining prices of global oil and fresh food prices have been stabilising local inflationary pressure, although the fading low-base effects from last year could temporarily push up headline inflation going forward, according to the Bank of Korea.

"As for the future price path, core prices are expected to continue a stable trend around 2%, and consumer prices are also expected to approach 2% toward the end of the year," the BOK said in a statement after the data was released.

The BOK voted 6-1 to cut policy interest rates to 3.25% on October 11 as uncertainties regarding the future path of output increased while headline inflation in September undershot the bank's 2% target.

A separate poll conducted in early October showed analysts expect the country's base rate to remain at 3.25% by the end of this year.

The inflation index was unchanged on a monthly basis from September, also weaker than a 0.2% gain forecast in the poll.

The so-called core price index, which strips out volatile food and energy prices, increased 1.8% from a year earlier, the weakest since Sept. 2021.

Prices of apple and green onions dropped 20% and 13.9% from a year earlier, respectively. Petroleum prices decreased 10.6% on the year.

(Reporting by Cynthia Kim; Editing by Chris Reese, Ed Davies)