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S. Korea's CPI accelerates to 4.7 pct in July: report

08-01-2011 11:09 BJT

SEOUL, Aug. 1 (Xinhua) -- South Korea's consumer price growth accelerated to 4.7 percent in July, boosting concerns that inflationary pressures are building up despite the government's anti-inflationary measures, a government report showed Monday.

The consumer price index (CPI) increased 4.7 percent in July from a year earlier, after gaining 4.4 percent in June, Statistics Korea said in a monthly report. From a month earlier, consumer prices jumped 0.7 percent last month.

The July's consumer inflation was the highest since a 4.8 percent on-year gain tallied for October 2008. It breached the upper ceiling of the Bank of Korea (BOK)'s target band 2-4 percent for the seventh consecutive month.

The core CPI, which excludes volatile energy and food prices, jumped 3.8 percent in July from a year earlier, up from a 3.7 percent on-year rise the previous month. It marked the fastest advance since May 2009 when it posted a 3.9 percent on-year gain.

The faster pace of core inflation reflects growing concerns that the cost-push inflation may spill over into the demand-pull one amid renewed worries that heavy rain over the past few days may heighten volatility of agricultural goods' prices.

According to the Korean Meteorological Administration (KMA), Seoul received a total of 301.5 millimeters of rain last Wednesday, the largest single-day rainfall in July since the weather agency began records in 1907. The worst downpour in decades spawned concerns over the possible supply disruption in farming goods.

Price hikes in public utility charges are expected to put upward pressure on inflation. The country's electricity prices will be raised by 4.9 percent on average starting this month.

Amid the deepening worries about high inflation, the BOK and the finance ministry raised their inflation projections for this year to 4 percent from the previous estimate of 3.9 percent and 3 percent respectively. The central bank and the ministry have repeated said that policy priority for this year will be placed at keeping price stability.

Prices for agricultural, dairy and fisheries goods climbed 11.2 percent in July from a year earlier, accelerating from a 9.3 percent on-year gain the previous month.

The fresh food price index, a gauge of vegetables and fruits, jumped 9 percent last month from the previous year, faster than a 4.7 percent in June.

Prices for industrial goods advanced 6.3 percent on-year in July amid higher oil prices. Oil product prices soared 13.6 percent in July from a year earlier.

Service prices gained 3 percent in July from a year earlier, up from a 2.9 percent on-year rise in June.

It reflected higher production costs are passing into public and private service fees. Among service items, rental prices jumped 4.2 percent on-year in July, with fees for private services such as dining-out costs advancing 3.3 percent last month.

Market watchers expected the BOK to raise its key rate in August by 25 basis points to 3.5 percent in a bid to tame inflation. The August rate-setting meeting will be held next Thursday.

"Inflation surprised on the upside again, and core inflation also picked up further. The authorities' macroeconomic policies will continue to prioritize inflation control. The next rate hike could come as soon as next week," DBS said in a daily note right after the release.

"The BOK will lift the key rate in August due to demand-side inflationary pressures. The BOK's rate hike is aimed at controlling the aggregate demand 12 months later, but without the rate increase, next year's inflation will be hard to control," Yum Sang-hoon, a fixed-income analyst at SK Securities in Seoul, told Xinhua before the release.

Editor:Wang Xiaomei |Source: Xinhua

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