Bloomberg News

South Korea’s Inflation Rises to 3-Month High, Above Target

December 01, 2011

(Updates with export data in the second paragraph.)

Dec. 1 (Bloomberg) -- South Korea’s inflation accelerated to a three-month high and above the central bank’s target limit in November, posing a dilemma for policy makers as risks to growth increase.

Consumer prices rose 4.2 percent from a year earlier, after a revised 3.6 percent gain in October, Statistics Korea said today in Gwacheon, south of Seoul. The reading used a new inflation gauge system after the government this week changed the base year for the index to 2010 from 2005. A separate report showed exports rose a more-than-forecast 13.8 percent.

Elevated inflation may leave limited room for the Bank of Korea to cut interest rates as Europe’s debt crisis dims the outlook for exports. China’s central bank last night announced the first cut in lenders’ reserve requirements since 2008, as the U.S. Federal Reserve led a global effort to ease strains in financial markets.

“Today’s data indicate inflation remains a concern,” Kong Dong Rak, a fixed-income analyst at Taurus Investment & Securities Co. in Seoul, said. “The central bank is likely to stay pat for another three months before considering a rate cut due to Europe.”

The won rose 1.5 percent to 1,126.15 per dollar as of 9:21 a.m. in Seoul, according to data compiled by Bloomberg. The Kospi stock index gained 3.4 percent.

The gain in exports compared with a median estimate of 10.4 percent in a Bloomberg News survey.

Calculation Revisions

Consumer prices rose 4.6 percent last month from a year earlier under the previous calculation system, according to today’s report. The median estimate in a Bloomberg News survey of 14 economists using the previous system was for a 4.4 percent increase. Prices rose 0.1 percent from October.

Core prices, which exclude agricultural and oil products, advanced 3.5 percent in November from a year earlier, it showed.

The government changed its inflation calculation system in a regular revision this week, cutting the number of items in its consumer price index basket to 481 from 489. A total of 21 items were removed, including gold rings and electronic dictionaries, while 43 items such as broadband fees and smart-phone charges were added. Some 57 items were merged into 25 categories, Statistics Korea said on Nov. 29.

Exports, which is half of the nation’s economy, rose to $47 billion last month from a revised $46.8 billion in October, today’s report showed. Imports climbed 11.3 percent to $43 billion. The trade surplus was $3.9 billion.

Economic Slowdown

Asia’s fourth-largest economy grew 0.7 percent last quarter from the three months through June, when it expanded 0.9 percent, the central bank said Oct. 27.

The nation’s industrial output slipped in October from the previous month as Europe’s sovereign-debt crisis damped demand for exports. Production fell 0.7 percent, the fifth decline this year, after expanding a revised 1.2 percent in September, Statistics Korea said yesterday.

South Korean manufacturers’ confidence held close to a 27- month low because of ongoing concerns over Europe’s debt crisis, according to a central bank report on Nov. 28. An index measuring expectations for December rose to 83 from 82 for November. A measure of expectations at non-manufacturing companies slipped to 82 from 84.

--With assistance from Sarina Yoo in Seoul. Editors: Paul Panckhurst, Iain Wilson

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To contact the reporters on this story: Eunkyung Seo in Seoul at eseo3@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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