Korea’s Fastest Inflation Since 2008 Raises Rate Pressure

(Bloomberg) -- South Korea’s inflation accelerated to the fastest pace since 2008 in April, prompting the central bank to issue a statement as pressure intensifies for it to raise interest rates further at this month’s policy meeting.

Consumer prices advanced 4.8% from a year earlier, quickening from 4.1% in March and exceeding economists’ estimate of 4.4%, data from the statistics office showed Tuesday. Transportation costs led the gains, reflecting surging energy prices that have been exacerbated by Russia’s invasion of Ukraine.

Inflation will remain in a 4% range for the foreseeable future, the Bank of Korea said in a statement following the data, a level that’s double the central bank’s 2% target. It’s “important to stably manage inflation expectations” as pressures rise on items such as gasoline, foods and dining, essential to people’s livelihoods, it said.

Intensifying inflationary pressure is a key factor for the BOK to consider when it meets May 26 in what will be Governor Rhee Chang-yong’s first rate decision. The Federal Reserve is widely expected to raise rates by half a percentage point later this week as it seeks to rein in consumer prices that jumped in March.

“The number knocked my hat off,” An Young-jin, an economist at SK Securities, said of the April reading. “The higher-than-consensus figure leads me to believe another rate hike in the BOK meeting in May is inevitable. At this pace, we may even see an inflation number beginning with ‘5’.”

Rhee said last week that inflation remains a bigger concern than threats to the outlook for economic growth. Inflationary pressures that drive up wages to create a vicious circle of price rises is another potential risk facing monetary policy makers.

“Inflation is starting to weigh on the economy,” said Lim Dong-min, a Kyobo Securities researcher. “Policy makers will probably concentrate their firepower in battling inflation this quarter.”

The Finance Ministry said in a separate statement earlier that it was quickly implementing various measures such as fuel tax cuts to rein in inflationary pressures.

The BOK has already hiked rates four times since August, leading the global exit from record monetary stimulus that helped soften the hit from the pandemic, while inflating asset bubbles across the economy.

Potential hurdles in the push toward higher rates are Russia’s war on Ukraine that’s weighing on Europe’s economy and Covid lockdowns in China. South Korea’s exports slowed last month as shipments to China fell for the first time since October 2020.

Today’s inflation report also showed:

• Compared with the previous month, consumer prices advanced 0.7%
• Core inflation accelerated to 3.6% from a year earlier, the fastest pace since December 2011
• Transportation costs led the gains, jumping 13.8% from a year earlier
• Utility costs advanced 4.5%. Food and beverage prices increased 4.6% from a year earlier. The price of household goods and services climbed 6.2%

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