South Korea’s inflation hit a 27-month high last month, fueled in part by rising world food prices and Middle Eastern turmoil pushing up energy costs.
The consumer price index increased 4.5 percent last month compared with a year earlier, Statistics Korea said. The figure stood at 4.1 percent in January.
With pressure rising for an early rate hike, Yoon Jong-won, head of the finance ministry’s economic policy bureau, said: “Shocks from soaring international crude oil prices were bigger than expected.”
“We are paying close attention to the impact of oil prices on inflation as the unrest in the Middle East continues,” Yoon was quoted by Yonhap news agency as saying.
South Korea relies entirely on imports for its oil needs, making it vulnerable to turbulence of the kind that is shaking up the Middle East.
The country was the world’s fifth-largest importer of oil last year, reflecting its dependence on energy-intensive manufacturing.
Month-on-month, the consumer price index rose 0.8 percent last month following a 0.9 percent increase in January.
South Korean Finance Minister Yoon Jeung-hyun convened a meeting yesterday with nine other senior officials to discuss how to stabilize living costs.
The government has already pledged to minimize increases in public service charges and announced tariff cuts for some imports such as pork, butter and metals.
The government will “basically” freeze utility service charges in the first half, but will gradually pass on gains in raw material prices to customers from the second half, South Korean Vice Finance Minister Yim Jong-yong told reporters afterwards.
There are no plans yet to revise official targets of GDP growth of about 5 percent and inflation of about 3 percent, Yim said.
HSBC Global Research said in a commentary the inflation figure was somewhat troubling since the rise happened before the jump in crude oil prices had fully filtered through.
It said core inflation, which excludes oil and food costs, grew 3.1 percent last month from a year earlier. However given strong output, export and employment numbers, inflation was the economy’s only headache.
“The data thus points one way: a rate hike on March 10. With numbers like these, tensions in the Middle East are not a sufficient excuse to stay on hold,” HSBC Global Research said.
South Korea’s central bank last month left interest rates unchanged after a 25 basis-point rate increase in January.
The bank is scheduled to meet again next Thursday.
However, Woori Investment and Securities’ economist Peter Park said he expected the bank to stand pat again next week since upward price pressures were being driven by “cost-push” factors.
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