2018 Inflation May Rise to 1.1% In Line with Energy Prices and Labor Costs (Business Brief No.3716 Full Ed.)

· Accelerating inflation in 4Q17 following rising energy prices and excise tax restructuring has resulted in the average 11-month inflation rate climbing to 0.66 percent. During November, Headline Inflation rose to 0.99 percent YoY, beating October, on rising domestic fuel prices and excise tax restructuring. In addition, the termination of the Free Bus-Train Ride program increased the value of mass transit fees in the inflation basket. These factors may continue to affect inflation until December.

· We at KResearch have revised our full-year projection for 2017 Headline Inflation down to 0.7 percent YoY because of unexpected decreases in fresh food prices. However, rising domestic energy prices and the impact of excise tax restructuring have helped to shore up inflation, somewhat.

· In 2018, Headline Inflation may accelerate to 1.1 percent YoY, or be within a range of 0.6-1.5 percent YoY, which would be consistent with higher energy prices and labor costs. There would also be a base effect caused by excise tax restructuring at the end of 2017, which would then be reflected in the Consumer Price Index during 2018.

· Any heightened 2018 inflation would mostly be likely the result of higher energy and labor costs, rather than greater consumption. Overall, consumer purchasing power may remain under pressure due to high household debts, since their incomes are not likely to increase significantly. Moreover, October employment did not signal any improvement, either, although the economy generally revived. However, continued growth in the economy and a broader distribution of growth may help to ameliorate the employment situation, which would then fortify consumer purchasing power in the country.