South Korea’s inflation rate rose to its highest level in 29 months last month as prices for food and gasoline jumped.
Rising costs have spurred South Korea’s central bank to raise interest rates in two of the past three months. Monetary authorities in some other countries, including China, have also been tightening policy to try and ease price pressures.
Statistics Korea said in a report yesterday that the consumer price index increased 4.7 percent last month from the year before amid higher costs for food and transport, including gasoline. It was the biggest increase since a rise of 4.8 percent recorded in October 2008.
Inflation has now exceeded the top of the Bank of Korea’s inflation “tolerance range” for three straight months. That range is plus or minus 1 percentage point from its inflation target of 3 percent.
The Bank of Korea’s interest rate-setting monetary policy committee holds its next monthly meeting on April 12. The central bank lifted its benchmark base rate to 3 percent from 2.75 percent last month. It has raised its benchmark interest rate four times since July of last year from a record low 2 percent amid strong economic growth and inflation concerns.
Kwon Young-sun, an economist at Nomura International in Hong Kong, said that last month’s inflation would have hit 5 percent were it not for sharp declines in high school tuition fees and expenses for elementary school lunches.
Kwon wrote in a report yesterday that prices for gasoline, private services and housing rents show no sign of easing, but that worries about the debt burden held by South Koreans are likely to constrain the central bank.
“We believe Bank of Korea will remain behind the inflation-fighting curve, partly due to concerns over household debt problems,” he wrote, adding that it is likely to raise the key rate by a quarter of a percentage point next month and in July.
In Thailand, inflation also accelerated to a seven-month high last month, supporting the case for the central bank to raise borrowing costs further.
An index of consumer prices increased 3.14 percent last month from a year earlier, the Thai Ministry of Commerce said in Nonthaburi Province outside Bangkok yesterday. The median estimate of 13 economists in a Bloomberg News survey was for a 3.1 percent gain. Prices rose 2.87 percent in February.
The Bank of Thailand raised its one-day bond repurchase rate by a quarter of a percentage point to 2.5 percent on March 9. The Thai Finance Ministry last month raised its forecast for the key rate to 3.25 percent this year from 3 percent, citing the risk of accelerating inflation. The next policy meeting is on April 20.
Separately, China’s manufacturing sector regained momentum last month, easing fears of a sharp slowdown, on strengthening demand for autos and machinery, according to surveys released yesterday.
The state-affiliated China Federation of Logistics and Purchasing reported its purchasing managers index rose to 53.4 last month, from 52.2 in February and 52.9 in January.
The rebound in demand was partly because of the dampening effect of a week-long holiday for the Lunar New Year in February, it said. The rise ended a three-month decline, though the reading has remained above 50, the benchmark for expansion, for more than two years.
A second, competing survey, the HSBC China Manufacturing Purchasing Managers Index, edged up to 51.8 last month from a seven-month low of 51.7 in February.
Economist Qu Hongbin (屈宏斌) of HSBC said the figure showed the pace of manufacturing stabilizing.
“This implies economic growth is only moderating rather than slowing too much. More importantly, price increases also started to slow in March,” Qu said.
Strong new orders for vehicles, machinery, equipment, furniture and garments suggest that demand is picking up in those key sectors, economist Ma Jun (馬駿) of Deutsche Bank Hong Kong said yesterday in an analysis of the government’s survey.
China’s economic outlook is improving as “reduced inflation pressure will lead to less aggressive policy tightening,” he said.
Inflation remained elevated in February at 4.9 percent, exceeding analysts’ forecasts and above the government’s 4 percent target for the year. Food price inflation unexpectedly accelerated to 11 percent from January’s 10.3 percent rate, but many economists forecast that price pressures will moderate by the middle of the year.
The HSBC survey covers 400 companies. The federation’s report covers 820 companies across a range of industries and is seen an indicator of future trends.
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