SEOUL (REUTERS) - South Korea's consumer inflation hovered near a decade high in February and stood above the central bank's 2 per cent target for an 11th month, adding pressure on policymakers to raise interest rates amid surging oil prices due to the Russia-Ukraine crisis.
The consumer price index (CPI) for February rose 3.7 per cent from a year earlier, government data showed on Friday (March 4), exceeding a 3.5 per cent gain tipped in a Reuters survey and a notch below the decade high of 3.8 per cent marked in November. It rose 3.6 per cent in January.
The breakdown of data showed that the cost of petroleum surged 19.4 per cent, while that of housing rentals and outdoor dining increased 2.1 per cent and 6.2 per cent respectively, year on year.
"Price instability will likely continue on persistent rise in energy prices and industrial goods," said Hi Investment & Securities economist Park Sang-hyun.
"Future development of the Ukraine crisis and its impact on oil prices will play a major role in inflation," he said.
Core inflation, which excludes volatile food and energy costs, jumped 2.9 per cent from a year earlier, the fastest since June 2009, in a sign that surging prices of fuel and other raw materials have fed through to higher costs for goods and services.
This puts the Bank of Korea's (BOK) monetary policy board under pressure to raise the base rate further in the coming months, following the back-to-back rate hikes in November and January. The BOK held the base rate at 1.25 per cent at its February meeting.
In late February, the BOK also sharply increased its inflation forecast for this year to 3.1 per cent from 2 per cent. It sees inflation next year at 2 per cent.
Separately on Friday, Finance Minister Hong Nam-ki said the country will extend the 20 per cent tax cut in oil products by three months to minimise the impact of surging energy prices, pushed up by the Russia-Ukraine crisis.
Standard Chartered Bank Korea economist Park Chong-hoon said: "South Korea's government reduced the fuel tax last year to ease price pressure. However, its impact was offset by a faster increase in oil prices. CPI would have been much higher in the absence of price controls, in our view."
