South Korea’s inflation accelerated further last month, underscoring the central bank’s need to keep raising interest rates to try to rein in mounting price pressures.
Consumer prices advanced 6.3 percent from a year earlier, quickening from 6 percent in June and matching estimates, government data showed yesterday.
Bank of Korea (BOK) Governor Rhee Chang-yong said a day earlier that the central bank would likely raise rates by 25 basis points this month, while declining to rule out a bigger increase.
Photo: EPA-EFE
Policymakers expect price growth would remain elevated for a few months before beginning to decelerate.
Risks to that outlook include an intensification of Russia’s war on Ukraine or a flaring of other geopolitical flashpoints.
Inflation came in largely in line with projections and would stay above 6 percent for some time to come, the central bank said in a statement after the release.
The war, global commodity prices and summer climate conditions, such as typhoons or heat, add to uncertainties for the price outlook, it said.
The latest inflation report also showed that consumer prices rose 0.5 percent last month, compared with the prior month, with core inflation coming in at 4.5 percent versus the prior year.
The BOK’s next rate decision is on Aug. 25.
Policymakers hiked by a half-percentage point last month, joining global counterparts including the US Federal Reserve, in opting for outsized increases.
Rising consumer prices have added pressure to wages, spurring disputes between workers and employers in some of the country’s key industries, such as automobiles and shipbuilding.
“Pressure on the BOK to raise rates, like the Fed, again will be strong if previous hikes fail to suppress wage growth and oil prices rise again,” Korea Economic Research Institute economist Lee Seung-suk said. “Inflation has been causing wages to increase and now wages will start to fuel inflation,” Lee said.
He estimates inflation increases 0.6 percent for every 1 percent rise in wages.
A year into its tightening cycle, the BOK is increasingly wary of risks to the economy, including the potential for a global recession as the Fed intensifies rate increases and Russia’s war keeps energy prices elevated.
COVID-19 lockdowns in China are also piling stress on international supply chains and weakening demand for South Korean products.
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