Inflation outlook in South Korea hit a 10-year high record this month, adding to worries about faster-than-expected interest rate hikes, the country’s central bank data showed.
Inflation expectations, a measure to find outlook among consumers over retail inflation for the next 12 months, was 3.9 percent in June, 0.6 percentage points higher than May, a report by Xinhua news agency quoted Bank of Korea (BOK).
The high inflation expectations may propel BOK to increase rates faster than expected.
Since August last year, the BOK has increased the key rate by 25 basis points. Although the BOK hasn’t raised rates by a half percentage point since 1999, there were growing expectations that it would do so in July.
Governor Rhee Chang-Yong and his monetary policy board decided to hike interest rates by a quarter of a percentage point to 1.75 percent, the highest level since mid-2019, in their first-rate review since assuming office in April.
The composite consumer sentiment index (CCSI) was 96.4 in June, down 6.2 points from May.
The index plummeted below 100 in February 2021, a sign of pessimists engulfing optimists over the economic situation.
The outlook result was drawn based on a survey of 2,500 households conducted between June 13 and 20.
Inflation In May Reaches 14-Years High:
Inflation growth in South Korea reached a 14-year high in May due to increased energy and food costs as a result of ongoing war between Russia and Ukraine and the economic recovery.
Consumer prices increased to 5.4 percent YoY in May, also up from 4.8 percent on-year in April, Yonhap News Agency report cited the data issued by the state-run Statistics Korea.
Consumer prices exceeded the 2 percent inflation target of the central bank’s over the medium term. It has breached the inflation target threshold for the 14th straight month in May.
Prices of petroleum products leapt 34.8 percent YoY in May, up from 34.4 percent gain reported in April due to sky-rocketing energy costs.
Personal service prices increased 5.1 percent on-year, the highest since December 2008. The costs of dining out accelerated to 7.4 percent.
Prices of agricultural, livestock and fisheries products also jumped to 4.2 percent on-year, up from 1.9 percent rise in April.
Core inflation,stripping out volatile food and oil prices, increased to 3.4 percent on-year last month, the highest since February 2009.