(Bloomberg) -- South Korea’s consumer inflation cooled more than expected in November, offering central bank authorities latitude to moderate their hawkish policy tilt going into next year.

Consumer prices rose 3.3% from a year earlier, decelerating from 3.8% growth in October, the statistics office reported Tuesday. Economists surveyed by Bloomberg were expecting inflation to slow to 3.5%.

The slowdown comes as oil price gains moderate while demand for agricultural products cools in the wake of the Chuseok holiday period. Consumer prices are likely to continue their stable trend barring external shocks, Finance Minister Choo Kyung-ho said in a statement following the data release.

Agricultural prices have been a major driver of inflationary pressure in Korea in recent months, while tight labor markets and fast wage hikes are leading factors spurring prices in other developed nations, according to the BOK. While BOK officials predict a slowing of inflation in the last part of 2023, rising prices for utilities, liquor and travel may limit the degree to which price gains decelerate, the bank said in a report last week.

Bank of Korea Governor Rhee Chang-yong and his policy board made it clear last week that fighting inflation remains their top priority. The bank raised its inflation forecast for next year to 2.6% from an earlier projection of 2.4% and also nudged up its prediction for this year to 3.6% in an indication that it would take longer to cool inflation than previously thought.

The central bank said after the data that inflation is expected to continue to decelerate, but at a moderate pace, as demand-side pressures weaken and the impact of supply shocks gradually diminish, provided that oil prices do not rise significantly again.

The BOK hopes to see inflation gauges fall to the 2% range before it considers any potential policy easing. Officials are also mindful of the need to deter any further ballooning of household debt levels that could weigh on economic growth in the long run.

Still, there are signs the BOK is relaxing its hawkish tone. Two board members said at last week’s meeting that the current policy rate of 3.5% is a suitable peak, while four others remained open to the possibility of a further increase if needed to combat inflationary pressure. That’s in contrast to a pledge from all six members to stay open to a potential hike if necessary in October.

“The more-than-expected slowdown is a factor that could contribute to less hawkishness in the board,” said Ahn Jae-kyun, a fixed-income analyst at Shinhan Securities. “But it’s too early to try to predict when a rate cut will come, based on current inflation data.”

What Bloomberg Economics Says...

“We see headline inflation easing further because pressure from the supply side is likely to wane and the lagged impact of monetary tightening will damp demand.”

— Hyosung Kwon, economist

To read the full story, click here.

Forecasting the trajectory of inflation has become more challenging since the Israel-Hamas conflict erupted in October, with the war threatening to fuel increases in oil prices if the violence spreads. This week southern parts of the Gaza Strip have been hit by airstrikes after Israel called for the evacuation of areas where it believes Hamas leaders are hiding.

Inflation is a key concern for government officials, as stubbornly high living costs could undermine support for President Yoon Suk Yeol and make it tougher for his party to win parliamentary elections in April.

Separately, the BOK said the South Korean economy grew 0.6% in the third quarter from the previous three months, in line with the initial estimate in preliminary data.

(Adds comments from economist, BOK and finance minister, chart)

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