Dow Jones Newswires: South Korea’s inflation stays high, bolstering case for rate hike

United States

Inflation in South Korea eased slightly in January but continued to remain above the central bank’s target, bolstering the case for winding back pandemic-era stimulus further to tame rising prices.

The benchmark consumer-price index rose 3.6% from a year earlier, the statistical office said Friday. That was down from December’s 3.7% rise but above the Bank of Korea’s 2% target.

The median forecast from economists polled by The Wall Street Journal was for a 3.4% increase.

January marked the fourth straight month of above-3% inflation and the 10th consecutive reading above the central bank’s target.

Inflation averaged 2.5% in South Korea in 2021 — the highest annual print in a decade.

Higher prices of oil and other raw materials as well as agricultural goods have continued stoking inflationary pressure.

Compared with the prior month, the index rose 0.6% in January after December’s 0.2% increase. The WSJ poll had tipped a 0.4% gain.

Core CPI, which strips out volatile energy and food prices, rose 2.6% from a year earlier in January compared with the prior month’s 2.2% gain. It rose 0.6% on month versus 0.4% in December.

The Bank of Korea has warned that inflation may overshoot its earlier forecast of 2.0% for 2022.

BOK Gov. Lee Ju-yeol said at the latest policy meeting in January that he expects inflation to rise above 3% for a while and average more than 2.5% for 2022, sharply higher than the central bank’s previous estimate.

Like other major central banks, the BOK has been tightening pandemic-era policy to fight inflation.

The BOK in January raised its base rate back to a pre-pandemic level of 1.25%, and Gov. Lee signaled more rate increases later in the year.

Minutes of the Jan. 14 meeting released late Thursday showed that a majority of the BOK board members opted to act preemptively against stronger-than-expected price growth and increasing financial imbalances.

Most analysts pencil in two or more rate increases in the coming months, given the BOK’s recent hawkish tilt.