South Korea’s inflation slowed last month from the fastest pace in 29 months, a moderation that may fail to deter the central bank from raising interest rates next week.
Consumer prices rose 4.2 percent from a year earlier, after a 4.7 percent gain in March, Statistics Korea said yesterday in Gwacheon, south of Seoul. That compared with a median estimate of 4.6 percent in a Bloomberg News survey of 13 economists. Prices were unchanged from March.
South Korean President Lee Myung-bak declared “war” on inflation in January, urging policy makers to contain inflation at 3 percent to protect families on low incomes. Central bank officials will need to gauge the effect that a surging won may have on exports and growth when reviewing rates on May 13 after leaving them unchanged last month.
“The government’s price controls seem to be working now, but inflation is still above the target and thus the central bank will raise rates next week,” said Park Tae-kuen, a fixed-income analyst at Hanwha Securities Co in Seoul. “The authorities may tolerate the won’s gains up to 1,050 per dollar as they help limit inflation and exporters seem to endure a strong won better than expected.”
The won rose 0.29 percent to 1,068.40 per US dollar at 9:06am in Seoul, according to data compiled by Bloomberg, while the KOSPI stock index rose 0.74 percent.
South Korea’s currency rose last week to its strongest since 2008. Exports are weathering gains by the won, with shipments rising a more-than-estimated 27 percent last month from a year earlier.
The Bank of Korea targets inflation of 2 percent to 4 percent through next year and is forecasting that the level will be 3.9 percent this year. Businesses pushing up prices this year have included cigarette maker British American Tobacco Korea.
Bank of Korea Governor Kim Choong-soo said on April 12 that he will alter monetary policy “neither too slowly nor too fast.”
The central bank will meet on May 13 to decide on its benchmark seven-day repurchase rate, which stands at 3 percent after quarter-point increases in January and March.
Core prices, which exclude oil and food, rose 3.2 percent last month from a year earlier, yesterday’s report showed.