Inflation in South Korea hits near decade high, raising bets on rate hike

SEOUL, Nov. 2 (Reuters) – Consumer inflation in South Korea accelerated to an almost 10-year peak in October amid rising costs for petroleum products, housing rentals and alfresco dining, putting pressure on policymakers ahead of the last monetary policy meeting of the year.

The consumer price index (CPI) jumped 3.2% from a year earlier in October, according to government data on Tuesday, the fastest growth since January 2012 and up from a 2.6% increase in September.

This matches a 3.2% increase announced by analysts in a Reuters survey and has remained above the central bank’s 2% target for a seventh consecutive month. Read more

The breakdown of the data showed that the cost of oil jumped 27.3%, while the cost of rental housing rose 1.8% year on year. Outdoor dining costs increased 3.2%, while other services, including accommodation, also increased 2.3%.

This puts pressure on the Bank of Korea’s (BOK) monetary policy board to raise the policy rate further at the November 25 meeting, after its first rate hike in nearly three years in August. Read more

Governor Lee Ju-yeol signaled last month that further tightening could come as early as November to curb rising inflation and household debt. Read more

The BOK is currently forecasting 2.1% inflation for 2021 as a whole and 1.5% for 2022, but the revised forecast will be announced at the November meeting.

Data on Tuesday also showed the core CPI rose 2.4% year-on-year, the fastest growth since December 2015 and up from 1.5% in September.

Month-on-month inflation rose 0.1%, slowing from September’s 0.5% rise, but on schedule.

New rules to get South Koreans to ‘live with COVID-19’ came into effect on Monday and are expected to increase consumer spending, with curfews in restaurants and cafes lifted and all remaining restrictions to be removed by February, with the exception of wearing a mask. Read more

The government also decided to temporarily reduce internal taxes on major petroleum products by 20 percent, which is expected to save consumers up to 2.5 trillion won ($ 2.12 billion) over a period of six months.

($ 1 = 1,176.6400 won)

(This story has been corrected from day of the week to Tuesday Wednesday in paragraphs 2 and 8)

Reporting by Joori Roh; Editing by Kim Coghill and Sam Holmes

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