Intellasia East Asia News – Korea February inflation accelerates to near decade high amid Ukraine crisis

South Korea’s consumer inflation hovered near a decade high in February and stood above the central bank’s 2 percent target for an 11th month, adding pressure on policymakers to raise interest rates amid surging oil prices due to the Russia-Ukraine crisis.

The consumer price index (CPI) for February rose 3.7 percent from a year earlier, government data showed on Friday, exceeding a 3.5 percent gain tipped in a Reuters survey and a notch below the decade high of 3.8 percent marked in November. It rose 3.6 percent in January.

The breakdown of data showed the cost of petroleum surged 19.4%, while that of housing rentals and outdoor dining increased 2.1 percent and 6.2%, respectively, year-on-year.

“Price instability will likely continue on persistent rise in energy prices and industrial goods,” said Park Sang-hyun, an economist at Hi Investment & Securities.

“Future development of the Ukraine crisis and its impact on oil prices will play a major role in inflation,” he said.

Core inflation, which excludes volatile food and energy costs, jumped 2.9 percent from a year earlier, the fastest since June 2009, in a sign that surging prices of fuel and other raw materials have fed through to higher costs for goods and services.

That puts the Bank of Korea’s (BOK) monetary policy board under pressure to raise the base rate further in coming months, following the back-to-back rate hikes in November and January. The BOK held the base rate at 1.25 percent at its February meeting.

In late February, the BOK also sharply increased its inflation forecast for this year to 3.1 percent from 2.0%. It sees next year inflation at 2.0%.

Separately on Friday, Finance minister Hong Nam-ki said the country will extend the 20 percent tax cut in oil products by three months to minimise the impact of surging energy prices, pushed up by the Russia-Ukraine crisis.

“Korea’s government reduced the fuel tax last year to ease price pressure, however, its impact was offset by a faster increase in oil prices. CPI would have been much higher in the absence of price controls, in our view,” Park Chong-hoon, economist at Standard Chartered Bank Korea, said.


Category: Korea

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