S.Korea inflation hits near decade-high, raising rate hike bets

·2-min read
FILE PHOTO: Customers shop amid the coronavirus disease (COVID-19) pandemic at a giant mall in Seoul

By Joori Roh

SEOUL (Reuters) -South Korea's consumer inflation accelerated to a near 10-year peak in October, forcing the central bank to revise up its 2021 price projections and reinforcing the case for another interest rate hike this year.

The consumer price index (CPI) jumped 3.2% from a year earlier in October, government data showed on Tuesday, the fastest growth since January 2012 and sharply higher than a 2.6% rise in September.

That matched a 3.2% increase tipped by analysts in a Reuters survey and remained above the central bank's 2% target for a seventh straight month.

The breakdown of data showed the cost of petroleum surged 27.3%, while that of housing rentals and outdoor dining increased 1.8% and 3.2%, respectively, on year.

That puts the Bank of Korea's (BOK) monetary policy board under pressure to raise the base rate further at the Nov. 25 meeting, following its first rate hike in almost three years in August.

Governor Lee Ju-yeol last month flagged further tightening could come as soon as November to curb rising inflation and household debt.

Hours after the data release, the BOK said it expects annual CPI growth for the whole of 2021 to hover above its 2.1% forecast released in August.

The central bank will announce the revision of forecasts at its November meeting.

Meanwhile, the finance ministry said it will buy back 2 trillion won ($1.70 billion) of treasury bonds to stabilise local bond markets, after rate hike bets led to a selloff in bonds, pushing up the benchmark 10-year treasury bond yield to the highest since August 2018 last week.

Tuesday's data also showed 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 in line with forecasts.

New rules aimed at moving South Koreans toward "living with COVID-19" came into effect on Monday and are expected to boost consumer spending, with curfews on restaurants and cafes being lifted.

The government also decided to temporarily cut domestic tax on key oil products by 20%, which is expected to help consumers save up to 2.5 trillion won over a six-month period.

($1 = 1,175.4700 won)

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

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting