South Korea July inflation accelerates to 4-month high on fresh food costs

[SEOUL] South Korean inflation accelerated to its fastest in four months on soaring fresh food costs and as consumer confidence improved in July.

The consumer price index rose 2.2 per cent in July on-year, faster than a 1.9 per cent gain in June, Statistics Korea said in a statement.

It was also the fastest rise since the index gained 2.2 percent in March, and topped the median estimate of 2.1 per cent seen in a Reuters survey.

The index rose 0.2 per cent from a month earlier, versus the survey's projection for a 0.1 per cent gain.

Consumer sentiment improved for a sixth straight month in July and reached a six and a half-year high as households saw better economic conditions ahead.

The benchmark inflation index had been tiptoeing around the Bank of Korea's 2 per cent target since January, suggesting the pick up in consumer spending is responding to the job creation and welfare policies of the newly elected Moon Jae In government.

But Stephen Lee, an economist at Meritz Securities, said inflation could slow again soon. "Domestic demand is improving, but surging fresh food prices played a bigger role in July inflation," Mr Lee said. "The benchmark inflation index is likely to stay below 2 per cent in August and September."

Tuesday's data showed the cost of fresh food surged 12.3 per cent, while the prices of electricity, water and gas gained 8 per cent from a year earlier.

Service costs grew 1.9 per cent in July on-year, after posting similar gains in June. "Heavy rainfall and summer heat wave have been boosting prices of vegetables," the finance ministry said in a statement, adding it saw the rise in fresh food costs slowing from September.

REUTERS