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S. Korea Producer-Price Inflation Eases Before Rate Decision

May 8 (Bloomberg) -- South Korean producer-price inflation cooled to the slowest pace in 26 months on a decline in meat and fish costs, according to a report released two days before a monetary-policy meeting.

Prices climbed 2.4 percent in April from a year earlier, the smallest gain since February 2010, after a 2.8 percent increase in March, the Bank of Korea said in a statement in Seoul today. Prices fell 0.1 percent from March.

“Waning price pressures will give policy makers more room to stay pat for a long time or even cut interest rates,” said Park Sang Hyun, chief economist at HI Investment & Securities Co. in Seoul. “Without a clear sign of growth momentum at home and overseas and a limited government budget, they may consider monetary easing as early as July.”

The Bank of Korea will keep its benchmark rate unchanged for an 11th straight month, according to all 15 economists surveyed by Bloomberg News. Samsung Securities Co. says that the first cut since 2009 may come next quarter as waning inflation allows policy makers to focus on spurring growth.

Consumer prices rose 2.5 percent in April from a year earlier, the slowest pace in 21 months, a government report showed on May 1.

South Korea’s economy expanded at the fastest pace in a year during the first quarter, boosted by government spending and investments by semiconductor chipmakers. Still, the Bank of Korea reduced its economic growth forecast for this year to 3.5 percent from 3.7 percent on April 16, citing downside risks from the European debt crisis and high oil prices.

To contact the reporter on this story: 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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