Korea’s headline inflation hits 5-year high in 2017

30-Dec-2017 Intellasia | Xinhua | 6:00 AM Print This Post

South Korea’s headline inflation hit the highest in five years in 2017, leaving more room for the country’s central bank to raise interest rate next year, a government report showed Friday.

Consumer prices gained 1.9 percent in 2017 from the previous year, according to Statistics Korea. It was the fastest increase since 2012, nearing the Bank of Korea (BOK)’s mid-term inflation target of 2 percent.

The consumer price inflation tumbled to 0.7 percent in 2015 amid the lackluster economic recovery before rising to 1 percent last year and 1.9 percent this year.

The higher inflation lessened the BOK’s burden in tightening its monetary policy stance next year. The central bank raised its benchmark rate in late November to 1.5 percent from an all-time low of 1.25 percent, the first rate increase in almost six and a half years.

The BOK faced pressure to raise its policy rate further as the US Federal Reserve increased its benchmark rate to a range of 1.25-1.5 percent, of which the upper end is identical to the BOK’s target rate.

If the South Korean central bank belatedly raises its policy rate, the benchmark rates between South Korea and the United States could be reversed. It can trigger an abrupt foreign capital exodus from the domestic financial market.

South Korea’s economic growth is expected to show an upbeat picture next year, granting the BOK room for the tightened monetary policy.

South Korea’s government set its 2017 growth outlook for the economy at 3.2 percent, forecasting the economy to grow 3 percent in 2018. The growth rate stayed below 3 percent from 2012 to 2016 except for a 3.3 percent growth in 2014.

The 2017 consumer price inflation was accelerated by higher farm goods prices, which soared 5.5 percent and drew up the overall headline inflation by 0.44 percentage points.

It was mainly attributable to heavy rain and sweltering heat in the summer season as well as the breakout of avian influenza, which pulled up livestock prices.

Industrial product prices rose 1.4 percent this year, pulling up the overall inflation by 0.46 percentage points. Prices for oil products jumped 7.7 percent amid expensive crude oil.

Prices for electricity, tap water and natural gas fell 1.4 percent this year as the government lowered electricity costs.

Service prices advanced 2 percent, raising the headline inflation by 1.09 percentage points. Private services prices climbed 2.5 percent, boosting the services costs.

The so-called livelihood prices, which reflect prices for daily necessities, rose 2.5 percent in 2017, logging the highest increase in seven years.

The fresh food price index jumped 6.2 percent on higher fresh fruit prices, which jumped 15 percent.

Core consumer prices, which exclude volatile oil and farm goods, rose 1.5 percent this year, the lowest since 1999. The OECD-method core prices, which exclude food and energy costs, gained 1.5 percent.

Meanwhile, consumer prices rose 1.5 percent in December from a year earlier, after gaining 1.3 percent in the prior month.

The higher December inflation was attributed to higher vegetable prices in the winter season. Vegetable prices surged 16 percent in December from a year ago, drawing up the overall headline inflation by 0.29 percentage points.

Prices for napa cabbage and carrots posted a double-digit fall, but those for red pepper powder and squid advanced 41.4 percent and 37 percent respectively.

Oil product prices jumped 7.5 percent in December on expensive crude oil, pulling up the overall headline inflation by 0.33 percentage points.

Prices for electricity, tap water and natural gas shed 1.5 percent in December, pulling down the overall inflation by 0.06 percentage points.



Category: Korea

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