South Korea’s Inflation Accelerates As Central Bank Consider Hike Rates, Economy News & Top Stories

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SEOUL • South Korea’s inflation rose unexpectedly last month as the central bank prepares to get above interest rates during the country’s worst coronavirus outbreak to date.

Consumer prices rose by 2.6 percent compared to the previous year and accelerated from 2.4 percent in the previous month, the statistics office reported yesterday. Economists had expected the rate to stay at June’s level.

The surge in inflation is a recent surge in viral infections to more than 1,000 new cases per day, and stricter social distancing rules are tarnishing the outlook.

Bank of Korea (BOK) Governor Lee Ju-yeol has signaled that he is preparing for a rate hike to prevent asset bubbles from worsening, but he also said the timing will depend on the virus situation. The BOK will meet on August 26 to decide on tariffs.

Headline inflation has now exceeded the central bank’s medium-term target of 2 percent every month since April, in part due to a comparison with last year’s dismal numbers. The BOK sees price gains fluctuate around their target for the remainder of the year before sliding down the next year.

A report last week showed that South Korea’s growth slowed in the final quarter from its high pace at the beginning of the year, but the central bank made it clear that it continues to see the recovery in line with its forecasts.

An additional budget of 34.9 trillion won (S $ 41 billion) to support consumption last month could stimulate economic activity and increase price pressure in the short term. The incentive aims to distribute cash to nearly 90 percent of South Korean households to stimulate consumer spending.

Compared to June, consumer prices rose 0.2 percent last month.

South Korea’s core inflation was 1.7 percent year-on-year.

Transport costs led to the growth and increased by 7.6 percent compared to the previous year in view of rising global energy prices. The cost of housing, water, electricity and fuel rose by 2.3 percent.

The prices for food and non-alcoholic beverages rose by 6.4 percent.

Maintenance costs, which were hard hit at the height of the pandemic, rose 1.3 percent last month. Education prices fell by 0.7 percent and communication costs by 2.2 percent.

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