South Korea Jan inflation jumps to over 4-year high, dims rate cut views

[SEOUL] South Korean consumer prices rose at their fastest in more than four-years in January, meeting the central bank's inflation target for the first time since it was lowered last year and muting calls for the Bank of Korea to cut interest rates.

The consumer price index rose 2 per cent in January from a year ago, data showed on Thursday, up from 1.3 per cent in December and marking the fastest rise since a 2.1 per cent gain in Oct 2012.

The figure was ahead of a 1.5 per cent rise projected in a Reuters survey.

From a month earlier, the index rose 0.9 per cent, above the survey's expected 0.4 per cent increase and the fastest rise in nearly nine years.

Core inflation, which strips out volatile food and fuel prices, rose 1.5 per cent, up from 1.2 per cent in December.

"Food prices have been rising recently, so in the first quarter we'll be seeing the effects of that on inflation. It looks like price pressures are normalising as oil prices rise as well," said Park Jung-Woo, economist at Korea Investment and Securities.

"This accelerating trend is likely to continue for a while."

Fresh food prices soared, jumping by 12 per cent on-year, while vegetable prices alone leaped 17.8 per cent.

South Korea may need a few more months to see if more expensive grocery bills are due to stronger consumption or from temporary factors like crops harmed by foul weather and an outbreak of bird flu.

Inflation has been lagging the BOK's target level for years, even after the target was lowered to 2 per cent at the start of last year from a range of 2.5 per cent to 3.5 per cent previously.

Wednesday's data may support the central bank's stance earlier this month to keep interest rates at a record low 1.25 per cent while it monitors uncertainties ranging from the pace of the US Federal Reserve's policy tightening and President Donald Trump's proposed trade policies.

Hong Chun-Uk, an economist at Kiwoom Securities said the central bank is likely to keep interest rates on hold for the rest of the year as inflation is likely to remain high at least until end-June, despite a sluggish economic recovery.

Minutes from the BOK's Jan 13 policy meeting showed that board members at the bank see a sustained rise in price growth this year towards the 2 per cent target.

REUTERS