South Korean Inflation Accelerates to 3-Year High, Pressuring BOK to Act
Aug. 26 (Bloomberg) -- Bank of Korea Governor Kim Choong Soo talks about Federal Reserve Chairman Ben S. Bernanke's speech in Jackson Hole, Wyoming, U.S. monetary policy and the dollar, the outlook for South Korea's economy and efforts to "normalize" the nation's interest rates. Kim speaks with Michael McKee on Bloomberg Television's "Street Smart." (Source: Bloomberg)
South Korea’s inflation accelerated to the fastest pace in three years in August on rising food prices, adding to pressure on the central bank to increase borrowing costs.
Consumer prices rose 5.3 percent from a year earlier, after a 4.7 percent gain in July, Statistics Korea said today in Gwacheon, south of Seoul. That was higher than any forecast by 11 economists, whose median estimate was 4.8 percent in a Bloomberg News survey. Prices rose 0.9 percent from July.
The Bank of Korea needs to weigh whether the threat of inflation is bigger than risks to growth as slowing global demand weighs on industrial output and corporate and consumer confidence. Stronger-than-expected exports last month may have strengthened the case for boosting borrowing costs.
“Today’s data shows the nation needs higher interest rates as inflation pressures will likely stay high and growth momentum is still intact despite the global financial market rout,” said Kong Dong Rak, a fixed-income analyst at Taurus Investment & Securities Co. in Seoul.
The won rose 0.4 percent to 1,062.80 per dollar as of 10:24 a.m. in Seoul, according to data compiled by Bloomberg. The Kospi stock index gained 2 percent.
Exports expanded 27.1 percent in August, exceeding analysts’ median estimate of a 25 percent gain, a separate report showed today.
Core Prices
Core prices, which exclude energy and food costs, advanced 4 percent in August from a year earlier, the biggest gain since April 2009, today’s report showed. The 5.3 percent increase in consumer prices was the fastest since August 2008. Prices of agricultural, livestock and fishery products jumped 13.3 percent from a year earlier, the report showed.
“Inflation will likely remain high ahead of the Chuseok holidays in September, but stabilize in the fourth quarter as the weather improves and oil prices fall,” said Lee Sang Jae, an economist at Hyundai Securities in Seoul. “The central bank is likely to take a wait-and-see stance on the rate policy for now as the economy faces higher risks from slower growth than higher prices.”
LG Display Co., the world’s second-largest maker of liquid- crystal displays, may cut spending next year as slowing flat- screen television sales damp demand, Chief Executive Officer Kwon Young Soo said last month.
’Normalize’ Rates
Bank of Korea Governor Kim Choong Soo said the central bank will continue to “normalize” interest rates unless there’s a global recession, in an interview in Jackson Hole, Wyoming on Aug. 26.
The central bank has raised its benchmark interest rate three times this year to 3.25 percent, most recently in June. It will meet to decide policy on September 8.
“With inflation emerging as a top political issue and stronger September exports expected, a rate hike in October cannot be ruled out,” Wai Ho Leong, senior regional economist of Barclays Capital in Singapore, said before the report.
Higher living costs have increased voters’ discontent with President Lee Myung Bak, whose public support fell to 33 percent last month compared with 76 percent when he came to power in February 2008, according to an Aug. 22-26 poll by Seoul-based Realmeter.
Exports, equivalent to about half the economy, fell to $46.4 billion last month from revised $50.6 billion in July, today’s report showed. Imports climbed 29.2 percent to $45.6 billion. The trade surplus was $821 million, compared with $6.3 billion in July.
South Korea’s industrial production rose 3.8 percent from a year earlier in July, compared with a 6.2 percent median estimate by 11 economists in a Bloomberg News survey, a report released yesterday showed.
Manufacturers’ confidence fell to a 21-month low for September and consumer confidence fell to a five-month low in August, reports last month showed.
To contact the reporters on this story: William Sim in Seoul at wsim2@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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