The July inflation rate rose by 2.73 percent, YoY, exceeding market projections. However, an easing Core Inflation rate for the 4th successive month to 1.87 percent YoY may reflect subdued price pressure, coinciding with concern toward our economic recovery in 2H12, which may be hampered by the Eurozone debt crisis. Meanwhile, delayed price increases by manufacturers and the government's existing energy price controls will continue into 2H12
Over the remainder of this year, KResearch forecasts that the government's policies toward domestic oil prices including leniency in the timing for domestic energy price restructuring and the extension of diesel excise tax cut, will be instrumental in capping consumer prices through this delayed push-through effect of energy costs on consumer prices. The Eurozone debt crisis, as well as US and Chinese economic slowdowns, have also kept commodity and oil prices from spiraling higher.
We at KResearch are keeping our view that the average inflation rate during 2H12 may be higher than that during 1H12. However, concern toward risks to the recovery during 2H12 (which may be hampered by the Eurozone crisis) is still evident; the government's measures to reduce the cost of living and delayed price increases by manufacturers through to 3Q12 may ease price pressure somewhat. As a result, the average inflation rate for 2012 may be lower than 3.5 percent, as in our base-case projection.
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