South Korea Inflation Accelerates to a Four-Month High, Exceeding Target
South Korea’s Inflation Accelerates to a Four-Month High
Jean Chung/Bloomberg
Electricity prices will rise by an average 4.9 percent starting today, the first hike in a year. South Korea’s central bank raised its benchmark interest rate three times this year to 3.25 percent, most recently in June.
Electricity prices will rise by an average 4.9 percent starting today, the first hike in a year. South Korea’s central bank raised its benchmark interest rate three times this year to 3.25 percent, most recently in June. Photographer: Jean Chung/Bloomberg
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South Korea’s inflation accelerated to a four-month high in July and exports grew at a quicker pace, putting pressure on the central bank to raise interest rates.
Consumer prices rose 4.7 percent from a year earlier, Statistics Korea said today, exceeding the median estimate of a 4.4 percent rise in a Bloomberg News survey of seven economists. Exports expanded 27.3 percent last month, rebounding from a 20- month low and beating forecasts for a 17.1 percent gain, a separate report showed.
The Bank of Korea’s board will meet on Aug. 11 to discuss whether to raise borrowing costs after reports last month showed that economic growth slowed in the second quarter on weaker exports. Policy makers across Asia are struggling to contain rising consumer prices as food costs soar.
“Korea’s economy is proving surprisingly robust,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. “This should provide the Bank of Korea with enough confidence to hike interest rates further.”
The won rose 0.5 percent to 1,049.20 per dollar as of 11:38 a.m. in Seoul, according to the data compiled by Bloomberg. The Kospi stock index gained 1.8 percent.
Exports, equivalent to about half the economy, increased to a record $51.4 billion last month from $47.8 billion in June, today’s report showed. Imports climbed 24.8 percent to $44.2 billion. The trade surplus was an all-time high $7.2 billion.
Cars Leading Growth
“Automobiles are leading the economy’s growth on strong sales both at home and abroad while semiconductor chips are a drag now due to weak prices,” Jung Gyu Don, director-general of Statistics Korea’s economic statistics bureau, said on July 29.
South Korea’s industrial production expanded at the slowest pace in nine months in June as export growth of semiconductor chips and other electronic goods slowed, according to the nation’s statistics agency.
“While the growth process is in a soft patch currently, inflation pressures remain high and the balance of risks is still tilted toward inflation,” Ma Tieying, an economist with DBS Bank Ltd. in Singapore, said before the release. He expects South Korea’s central bank to raise interest rates by half a percentage more this year.
Today’s trade report signals the economy may be rebounding from a second-quarter slowdown, when gross domestic product rose 0.8 percent from the previous quarter.
Kia Motors Corp. posted a 67 percent increase in second- quarter profit while Hyundai Motor Co., South Korea’s largest carmaker, reported a 37 percent gain in profit in the same period. Profits at Samsung Electronics Co. and Hynix Semiconductor Inc. declined 25 percent and 34 percent last quarter on falling chip prices, respectively.
Raising Forecasts
South Korea last month raised its forecast for exports this year to $557 billion from the $513 billion it projected last December. The 19.4 percent increase in exports will likely leave a trade surplus of $29 billion, more than the earlier estimate of $25 billion, according to the economy ministry.
Electricity prices will rise by an average 4.9 percent starting today, the first hike in a year. South Korea’s central bank raised its benchmark interest rate three times this year to 3.25 percent, most recently in June.
Core prices, which exclude energy and food costs, advanced 3.8 percent in July from a year earlier, today’s report showed.
“The unusually heavy rain in July must hurt crops of vegetables and fruits, which, together with power tariff hike, should keep the inflation rate well above 4 percent this month,” Park Sang Hyun, chief economist at HI Investment & Securities Co. in Seoul, said. He expects the Bank of Korea to increase borrowing costs again in August.
To contact the reporters on this story: Shinhye Kang at skang24@bloomberg.net; Eunkyung Seo in Seoul at eseo3@bloomberg.net
To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net
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