South Korea May inflation ticks up, consumption recovering

By Choonsik Yoo and Cynthia Kim

SEOUL (Reuters) - South Korea's consumer price inflation ticked up in May from April, data showed on Thursday, in line with recent signs of slowly improving consumer spending in Asia's fourth-largest economy.

The consumer price index rose 2.0 percent in May from a year before, up from a 1.9 percent gain in April and reaching the central bank's target, Statistics Korea said. The May reading matched a 1.95 percent rise forecast a Reuters survey and came within the range of 1.9 percent to 2.2 percent seen so far this year.

The index rose 0.1 percent from a month earlier, reversing a 0.1 percent fall in April.

A mix of low wage growth, sharp increases in rents and still-sluggish demand has restrained inflation in South Korea for several years, but it has been recovering incrementally since the beginning of the year.

"Gradually improving domestic demand will place upward pressure on inflation, although the recently strengthening won will keep the recovery in inflation modest," said Lee Sang-jae, chief economist at Eugene Investment and Securities.

In January, headline inflation hit the central bank's inflation target of 2 percent for the first time since the present goal was set last year, and has hovered around there since, muting calls for the Bank of Korea to cut interest rates.

Starting 2016, the BOK trimmed its annual inflation outlook to 2 percent for three years, down from a target band of 2.5 percent to 3.5 percent set for the 2013-2015 period.

Annual core inflation, which strips out the volatile prices of agricultural and oil products, was 1.4 percent in May, also ticking up from 1.3 percent in April.

(Reporting by Choonsik Yoo and Cynthia Kim; Additional reporting by Dahee Kim; Editing by Eric Meijer)