South Korea's June inflation near 9-year peak, rate hike prospects grow
SEOUL (REUTERS) – South Korea’s consumer inflation in June remained below a nine-year peak and stood above 2 per cent for a third straight month, adding pressure on policymakers to raise interest rates sooner rather than later.
Consumer prices rose 2.4 per cent year-on-year in June, government data showed on Friday, just notches below a 2.6 per cent increase in May when it logged the fastest growth since April 2012.
It slightly missed a median estimate for a 2.5 per cent increase tipped in a Reuters survey of 17 economists.
The breakdown of data showed the cost of agricultural, livestock and fisheries products and petroleum surged 10.4 per cent and 19.9 per cent, respectively.
Many economists now see a rate hike coming as early as the third quarter, as house prices soar and inflation remains above 2 per cent, even as last year’s low base affects roll-off.
South Korea is seen to be the first Asian economy to pull back on pandemic-era monetary stimulus and start normalising easy policy.
BOK Governor Lee Ju-yeol said last week the bank will start normalising easy monetary policy by the end of the year.
“We now expect the BOK to start to raise rates in the fourth quarter, and deliver 25-50 basis points hikes per year during the upcoming cycle,” DBS economist Ma Tieying said.
Capital Economics said in a note earlier this week that it expects the BOK to raise rates in August.
Friday’s data showed consumer prices rose an average 1.8 per cent during the first half of the year, standing near the BOK’s 2 per cent target.
The bank next reviews its policy rate at its July 15 meeting.
Rising input costs due to inflationary pressure is also seen adding strains to manufacturing-heavy economy, with a BOK report published this week saying 49.2 per cent of 281 firms surveyed were seen passing higher costs to clients.
Meanwhile, core CPI, which excluded volatile energy and food prices, came at 1.2 per cent year-on-year, unchanged from May when it rose at the sharpest pace since November 2018.
Month-on-month inflation, however, fell 0.1 per cent, falling into negative territory for the first time in seven months and versus a 0.1 per cent rise a month earlier.
That was mainly due to a fall in prices of agricultural, livestock and fisheries products, which offset rising prices of industrial products, homes and services, data showed.
The BOK currently sees inflation standing at 1.8 per cent for the whole of 2021 and 1.4 per cent for 2022. It came at 0.5 per cent in 2020, just above the record low of 0.4 per cent in 2019.
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