Consumer Inflation in S.Korea at 9-Year Peak; Rates Expected to Hike

August consumer inflation stayed at a nine-year peak in South Korea, raising the chances that the central bank will increase the interest rates again this year as strong demand adds to price pressures.

Statistics Korea said on Thursday, that the consumer prices of S.Korea in August rose at 2.6% from a year earlier, matching the rate in July, driven by a spike in fresh food prices due to a heatwave and high cost of oil products, housing rental, and other services.

The increase of 2.6% was first seen in May of 2021, when inflation marked the fastest pace since April 2012 and continued to stay above.

Thursday’s data release comes a week after the Bank of Korea raised the policy rate for the first time in almost three years, tagged now as the first major Asian central bank to shift away from pandemic-era monetary settings as increasing consumer debt created new threats for the country’s economy.

ANZ economist Krystal Tan said in a note that, “Our base case is for the next hike to materialize in early 2022, but we acknowledge that increasing demand-side price pressures and rising inflation expectations could trigger an earlier move-in November this year if growth uncertainties ease by then.”

A slim majority of 10 analysts predicted the base rate would stand at 1.25% by the end of next year.