Korea’s Inflation edged down to 0.4% y/y in March (February: 0.5%; January: 0.8%). The softness was still centred on oil prices as the initial pass-through from lower fuel prices broadened out to other energy components.Indeed, March saw the largest cut in retail gas prices for households on record – 10.1% (with effect from 1 March) – as the government was anxious to pass on cost savings. This alone subtracted at least 30bp from both headline CPI and core inflation in March.The oil drag has started to fade as retail gasoline prices have rebounded by 7% from their lowest level in February. There is also no sign of deflation even though core inflation edged down to 2.1% y/y in March (February: 2.3%; January: 2.4%).if the effect of the tobacco price hike at the start of the year is excluded, core rose 1.5%.More importantly, the contribution from services inflation to the core rate rise to 0.88pp in March (February: 0.85pp; January: 0.80pp), led mainly by a jump in the hotel and restaurants component contribution.“we expect incoming inflation prints to remain benign over the coming months. We recently lowered our 2015 inflation forecast by 20bp, to 0.9%, and expect inflation to remain subdued at 0.5% in H1, before rebounding in H2 to an average of 1.3%” Said Barclays in a report on WednesdayBarclays says that they expect the BoK to remain dovish. The BoK delivered a surprise pre-emptive cut on 12 March, following increased government pressure to ease further.

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