share this article!

3 Minutes to Read (Adds details, economist comment) SEOUL, South Korea, July 2 (Reuters) – Consumer inflation in South Korea remained below a nine-year high in June, but rose beyond 2% for the third month in a row, putting pressure on authorities to raise interest rates sooner rather than later. Consumer prices grew 2.4 percent year over year in June, according to official statistics released on Friday, just 0.1 percent lower than the 2.6 percent increase in May, which was the fastest since April 2012. It fell just short of the median projection of a 2.5 percent increase in a Reuters poll of 17 economists. The cost of agricultural, livestock, and fishery products, as well as petroleum, increased by 10.4% and 19.9%, respectively, according to the data. Many economists now expect a rate hike in the third quarter, as home prices continue to rise and inflation continues above 2%, despite the fact that last year’s low base is affecting roll-off. South Korea is widely regarded as the first Asian economy to abandon pandemic-era monetary stimulus in favor of a more normalized strategy. Last week, BOK Governor Lee Ju-yeol stated that by the end of the year, the bank will begin to normalize its easy monetary policy. “We now expect the BOK to begin raising rates in the fourth quarter and deliver 25-50 basis point hikes per year during the next cycle,” said Ma Tieying, a DBS analyst. In a paper released earlier this week, Capital Economics predicted that the BOK will raise rates in August. Consumer prices gained an average of 1.8 percent in the first half of the year, close to the BOK’s objective of 2 percent, according to data released on Friday. The bank’s policy rate will be reviewed again on July 15th. Rising input prices as a result of inflationary pressure are also putting pressure on the manufacturing-heavy economy, according to a BOK analysis released this week, which found that 49.2 percent of 281 enterprises surveyed were passing increased costs on to their customers. Meanwhile, core CPI, which excludes volatile energy and food prices, was unchanged from May, when it increased at the fastest rate since November 2018. Inflation dipped 0.1 percent month over month, dropping into negative territory for the first time in seven months, compared to a 0.1 percent rise a month earlier. According to data, this was primarily due to lower prices for agricultural, livestock, and fishery products, which offset increased prices for industrial goods, housing, and services. Inflation is expected to be 1.8 percent in 2021 and 1.4 percent in 2022, according to the BOK. In 2020, it was 0.5 percent, very slightly higher than the record low of 0.4 percent in 2019. (Jori Roh contributed reporting; Sam Holmes and Stephen Coates edited the piece.)/nRead More

share this article!