(Bloomberg) -- South Korea's central bank said it's on guard against stronger-than-expected price pressures after data showed inflation spiking to the fastest since 2012, boosting the case for another interest rate hike this month.
In a statement released after data showed consumer prices jumping 3.2% in October, the Bank of Korea said it is closely monitoring the possibility of an upward trend in global commodity prices and supply chain bottlenecks lasting longer than expected, turning up inflationary pressure.
Korea's latest inflation report could fuel the view that the upward tick in global inflation will persist rather than be transitory. Inflation has accelerated across the world, driven by rallying energy prices and supply chain disruptions that look set to last well into next year.
While Korea's headline reading was lifted by a low base of last year when the government provided mobile fee subsidies, the BOK said inflation will still stay “significantly above” the 2% target for some time. The central bank also expected inflation for this year to exceed its previous 2.1% forecast, which it will update at the Nov. 25 rate decision.
Quickening inflation has forced some central banks to unwind pandemic stimulus settings earlier than expected. The Reserve Bank of Australia on Tuesday abandoned its yield target, a policy about-turn forced by surprise strength in its underlying inflation.
“Korea's inflation may ease going forward but it will be a very gradual process,” said Lim Hyeyoun, an economist at Hanwha Investment & Securities in Seoul. “We expect the BOK to hike this month and then again in January.”
In separate statements Tuesday, Korea's finance ministry said that when the impact of last year's subsidies are stripped out, October inflation is around the same level as September's 2.5%. The ministry also said it will seek to accelerate the transmission to the fuel pump of a 20% cut in fuel tax starting Nov. 12 to help cool consumer prices.
What Bloomberg Economics Says...
“Looking ahead, inflation is set to enter a downward trajectory through year-end and into 2022, but is likely to remain above target. We forecast it will return to target in the first quarter of next year.”
-- Justin Jimenez, Asia Economist
Read full report here.
Headline inflation in October was driven by a 10.4% jump in transportation costs -- affected by energy prices -- which added 1.11 percentage point to the overall reading. Communication fees also rose 13.1% from last year's weak base, adding another 0.57 percentage point. The components for utility, food, restaurant and accommodation also contributed notably.
From the previous month, consumer prices were up 0.1%.
Korea's core inflation, which excludes agriculture and oil prices, came in at 2.8% from a year earlier, also the highest since 2012.
©2021 Bloomberg L.P.
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