South Korea's consumer inflation slowed to 2.8% in October from 2.9% in September, government data showed Tuesday, as falling farm prices offset a 14.9% jump in petroleum products. Core inflation held at 2.8%, leaving prices running well above the Bank of Korea's 2% target.

For investors across Asia, the figure does little to dent expectations of a third rate increase. Citibank economist Kim Jin-wook expects the Bank of Korea to raise rates by a quarter point at its Nov. 26 meeting, The Korea Times reported. The central bank raised its base rate by a quarter point in July and again in August, then held it at 3.00% on Oct. 22 to give itself time to assess the effect of those moves, according to Trading Economics. Another increase would matter for the won, for Korean bond yields and for foreign flows into the Kospi.

Fuel Drives South Korea's Inflation

Energy did most of the work. Petroleum product prices rose 14.9% from a year earlier and added 0.56 percentage point to the headline rate, according to data reported by Yonhap. Diesel jumped 19.7% and gasoline 11.6%. The petroleum increase was the steepest since July, when it reached 15.5%.

The pressure would have been greater without government intervention. The Finance Ministry estimates that its fuel price cap system lowered October inflation by 0.8 percentage point, Yonhap reported.

Eating out also got more expensive. Restaurant prices rose 2.9%, the fastest pace since February, and contributed 0.42 point to inflation. Processed food prices climbed 2.9%, up from 2.1% in September, The Herald Business reported.

Services rose 2.7%, led by a 13.4% increase in insurance premiums and an 11.5% rise in overseas package tours. Industrial products gained 4.4%, pushed up by mobile phones (up 10.8%) and computers (up 26.2%). Imported cars fell 3.9%. Electricity, gas and water rose only 0.4%.

Cheaper Cabbage Offsets the Pump

Food at the farm gate pulled the other way. Prices for agricultural, livestock and fishery products fell 1.7%, the third straight monthly decline, and subtracted 0.14 point from the headline figure. Napa cabbage was 44.3% cheaper than a year earlier, cucumbers 39.5% cheaper and apples 13.4% cheaper. Domestic beef went against the trend, rising 9.1%.

Agricultural products alone fell 7.5%, and vegetables dropped 11.2%, according to The Herald Business. The fresh food index slid 6.2%. The index of everyday living costs, which tracks items households buy often, rose 2.6% after 2.5% in September.

The cheap cabbage comes at a useful moment for households. The estimated cost of making kimchi for a family of four this season is 238,280 won, 4.2% less than last year, The Herald Business reported. The government has set aside 64 billion won (about $47.5 million, per Yonhap) for discount events before the kimchi-making season.

First Vice Finance Minister Kwon Dae-young told an inter-agency meeting on prices that the cumulative effect of past increases means prices still feel high to consumers, and that upward pressure and risks remain. He also said Korea's inflation rate is holding steady compared with other major economies, crediting policies such as the fuel price cap.

Bank of Korea Sees High 2% Range Persisting

The Bank of Korea did not read the slowdown as the end of the problem. Deputy Governor Lee Ji-ho said October inflation eased as shipments of agricultural products improved. He said inflation should stay in the high 2% range in November, “affected by global oil prices,” with core inflation still rising, Yonhap reported via The Korea Times. The bank also pointed to both cost and demand pressures tied to continuing uncertainty in the Middle East.

That outlook matters for the rate debate. Headline inflation has stayed in a narrow band since May: 3.1% in May, 3.2% in June, 2.8% in July and 3.1% in August before the past two months in the upper 2% range. Core inflation at the same 2.8% as the headline rate suggests price pressure is spread beyond fuel.

Growth gives the central bank room to keep tightening. South Korea's economy grew 1% in the third quarter, triple the Bank of Korea's forecast, and October exports jumped 93.7% to $115.3 billion on chip sales.

Markets had been watching the third-quarter GDP figures and the October inflation data for signals ahead of the board's final policy meeting of the year. With both now in hand, the next test is November's price data and the board's decision on Nov. 26, when it will choose between a third hike since July and another pause at 3.00%.