South Korea’s inflation last month accelerated to the fastest pace since 2008, prompting the central bank to issue a statement as pressure intensifies for it to raise interest rates further at this month’s policy meeting.
Consumer prices advanced 4.8 percent from a year earlier, quickening from 4.1 percent in March and exceeding economists’ estimate of 4.4 percent, data from the statistics office showed yesterday. Transportation costs led the gains, reflecting surging energy prices that have been exacerbated by Russia’s invasion of Ukraine.
Compared with the previous month, consumer prices advanced 0.7 percent, while core inflation accelerated to 3.6 percent from a year earlier, the fastest pace since December 2011.
Photo: EPA-EFE
Inflation is forecast to remain in a 4 percent range for the foreseeable future, the Bank of Korea (BOK) said in a statement following the data’s release, a level that is double the central bank’s 2 percent target.
It is “important to stably manage inflation expectations” as pressures rise on items such as gasoline, foods and dining, essential to people’s livelihoods, it said.
Intensifying inflationary pressure is a key factor for the central bank to consider when it meets on May 26 in what would be BOK Governor Rhee Chang-yong’s first rate decision.
The US Federal Reserve is widely expected to raise rates by half a percentage point later this week, as it seeks to rein in consumer prices that jumped in March.
“The number knocked my hat off,” An Young-jin, an economist at SK Securities Co, said of last month’s reading. “The higher-than-consensus figure leads me to believe another rate hike in the BOK meeting in May is inevitable. At this pace, we may even see an inflation number beginning with ‘5.’”
Rhee last week said that inflation remains a bigger concern than threats to the outlook for economic growth. Inflationary pressures that drive up wages to create a vicious circle of price rises is another potential risk facing monetary policy makers.
“Inflation is starting to weigh on the economy,” said Lim Dong-min, a Kyobo Securities researcher. “Policymakers will probably concentrate their firepower in battling inflation this quarter.”
The South Korean Ministry of Finance said in a separate statement earlier that it was quickly implementing various measures, such as fuel tax cuts, to rein in inflationary pressures.
The BOK has already hiked rates four times since August last year, leading the global exit from record monetary stimulus that helped soften the hit from the COVID-19 pandemic, while inflating asset bubbles across the economy.
Potential hurdles in the push toward higher rates are Russia’s war on Ukraine that is weighing on Europe’s economy and COVID-19 lockdowns in China. South Korea’s exports slowed last month as shipments to China fell for the first time since October 2020.
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