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(LEAD) S. Korea's inflation at 24-year high in June; sharp rate hike in offing

All News 08:59 July 05, 2022

(ATTN: RECASTS headline, lead; UPDATES with more details throughout; ADDS photo)
By Kim Soo-yeon

SEOUL, July 5 (Yonhap) -- South Korea's consumer prices rose at the fastest clip in nearly 24 years in June due mainly to soaring energy costs, data showed Tuesday, fanning expectations of a sharp rate hike this month.

Consumer prices soared 6 percent last month from a year earlier, accelerating from a 5.4 percent on-year spike in May, according to the data from Statistics Korea.

It marked the sharpest inflation rate since a 6.8 percent jump in November 1998, when South Korea was in the midst of the 1997-98 Asian financial crisis.

Consumer prices rose above 2 percent -- the central bank's inflation target over the medium term -- for the 15th straight month in June.

South Korea faces growing inflationary pressure, as crude oil and other commodity prices rose due to the protracted war between Russia and Ukraine, and global supply disruptions. Demand-pull inflation has also increased amid the economic recovery.

The statistics agency said inflation is expected to stay at the 6 percent range for the time being.

"If the current trend continues, annual inflation could exceed the 4.7 percent forecast (by the finance ministry)," Eo Woon-sun, a senior Statistics Korea official, told reporters.

This photo, taken July 4, 2022, shows gas and diesel prices at a filling station in Seoul. (Yonhap)

Mounting inflationary pressure lent support to the prospect that the Bank of Korea (BOK) will further hike the policy rate this month.

Some experts forecast the BOK to conduct an unprecedented "big-step" rate increase of 50 basis points at the July 13 policy meeting to tame inflation.

The BOK has hiked the key interest rate five times -- all by a quarter percentage point at a time -- since August last year to 1.75 percent.

Prices of petroleum products jumped 39.6 percent on-year in June, faster than a 34.4 percent increase in May due to high fuel costs.

Dubai crude, South Korea's benchmark, averaged US$113.27 per barrel in June, up 58 percent from a year earlier. South Korea depends mainly on imports for its energy needs.

Personal service prices climbed 5.8 percent, and the costs of dining out jumped 8 percent, affected by a recovery in demand and the lifting of major virus curbs.

Prices of agricultural, livestock and fisheries products increased 4.8 percent on-year.

Core inflation, which excludes volatile food and oil prices, climbed 3.9 percent on-year last month, the sharpest gain since February 2009.

Another gauge of core inflation, which excludes prices of agricultural and petroleum products, rose 4.4 percent last month, the fastest increase since March 2009.

In June, prices of daily necessities -- 141 items closely related to people's daily lives, such as food, clothing and housing -- spiked 7.4 percent on-year, the highest growth since November 1998.

People shop for groceries at a discount chain store in Seoul on July 4, 2022, amid high inflation. (Yonhap)

The government on Friday expanded fuel tax cuts to a legal cap of 37 percent from the previous 30 percent in a bid to ease the burden from high energy prices. The measure will be effective until the end of this year.

Despite inflationary pressure, the government allowed the state-run Korea Electric Power Corp. (KEPCO) to hike electricity rates for the third quarter due to its widening losses from high energy prices. Natural gas prices for civilian use were also raised Friday.

Last month, the finance ministry sharply raised its 2022 inflation outlook to a 14-year high of 4.7 percent from its earlier estimate of 2.2 percent. The government lowered its economic growth estimate to 2.6 percent this year.

The BOK put its 2022 growth forecast at 2.7 percent and expected consumer prices to rise 4.5 percent this year.

Global credit appraiser S&P Global Ratings on Monday forecast South Korea's inflation to jump 5 percent in 2022.


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