SKorea inflation jumps to 4.7 percent in March

AP News
Posted: Apr 01, 2011 5:36 AM
SKorea inflation jumps to 4.7 percent in March

South Korea's inflation rate rose to its highest level in 29 months in March as prices for food and gasoline jumped.

Rising costs have spurred South Korea's central bank to raise interest rates in two of the past three months through March. Monetary authorities in some other countries including China have also been tightening policy to try and ease price pressures.

Statistics Korea said in a report Friday that the consumer price index increased 4.7 percent in March from the year before amid higher costs for food and transport, including gasoline. It was the biggest increase since a rise of 4.8 percent recorded in October of 2008.

Inflation has now exceeded the top of the Bank of Korea's inflation "tolerance range" for three straight months. That range is plus or minus one percentage point from its inflation target of 3 percent.

The Bank of Korea's interest rate-setting monetary policy committee holds its next monthly meeting on April 12. The BOK has raised its benchmark interest rate four times since July of last year from a record low 2 percent amid strong economic growth and inflation concerns.

South Korea's economy, Asia's fourth largest, grew a revised 6.2 percent last year, recovering from an 0.3 percent expansion in 2009 when it was hit by the global slump that followed the financial meltdown of late 2008.

Kwon Young-sun, an economist at Nomura International in Hong Kong, said that March inflation would have hit 5 percent were it not for sharp declines in high school tuition fees and expenses for elementary school lunches.

Kwon wrote in a report Friday that prices for gasoline, private services and housing rents show no sign of easing, but that worries about the debt burden held by South Koreans are likely to constrain the central bank from aggressively raising borrowing costs.

"We believe the Bank of Korea will remain behind the inflation-fighting curve, partly due to concerns over household debt problems," he wrote, adding that it is likely to raise the key rate by a quarter percentage point each in May and July.

The central bank's lifted its benchmark base rate to 3 percent from 2.75 percent last month. The rate influences a variety of borrowing costs in South Korea, including those on overnight loans between financial institutions and more broadly on items such as mortgage and credit card debt.

Separately, South Korea's exports surged 30 percent in March to a record high $48.6 billion led by shipments of petroleum products and ships, the Ministry of Knowledge Economy announced Friday. Imports rose 28 percent to a record $45.5 billion as rising energy prices increased the cost of raw materials, the ministry said. The trade surplus was $3.1 billion.

Exports in the first quarter of this year rose to an all-time high of $131.8 billion, the ministry said, besting the previous record set in the final three months of last year.