Economic data presses for BOK's rate hikes in March
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South Korea's economic data is pressing for the country's central bank to raise interest rates at the rate-setting meeting in March, analysts said.
Just a week ago, a majority of market participants forecast that the Bank of Korea (BOK) will likely hold its key interest rate at 2.75 percent in March as anti-government protests in the Middle East could push oil prices much higher.
However, expectations for the BOK's rate increases re-emerged to the front after the country's latest data confirmed that the Asia's fourth largest economy is continuing to recover and consumer inflation is accelerating.
ROBUST GROWTH & RISING INFLATION
Production in the mining and manufacturing industries jumped 13. 7 percent in January from a year earlier, after posting a revised 10.6 percent expansion in December, Statistics Korea said Thursday.
The January reading marked a double-digit on-year growth for the fourth consecutive month, indicating that the South Korean economy maintained its robust growth despite lingering uncertainties at home and aboard.
The country's inflation accelerated in February mainly due to higher food and oil-related costs, adding pressures on the BOK's rate increases.
South Korea's consumer price index (CPI) jumped 4.5 percent in February from a year earlier, after gaining 4.1 percent in January, according to the report released by the statistics agency on Wednesday,
The February reading breached the central bank's 4 percent ceiling for the second consecutive month and stayed much higher than the government's inflation target of 3 percent. It posted the highest level since 4.5 percent in November 2008.
DEMAND-PULL INFLATION
The most outstanding difference between January and February CPI is the advent of comments on price rises of the restaurants & hotels industry in the February consumer price report.
Restaurants & hotels sector was described as the most significant price rises along with food & non-alcoholic beverages industry, implying higher food and oil costs passed through the prices of eating-out and accommodation.
The consumer prices for restaurants & hotels rose 1.4 percent in February from a month earlier, while food & non-alcoholic beverages' prices gained 1.8 percent, according to the report.
Vice Finance Minister Yim Jong-yong also mentioned demand-pull inflation, boosting expectations that the South Korean government is willing to allow the rate hikes for curbing inflation.
"Supply-side factors have mainly driven the nation's consumer prices higher, but it appears that sign of demand-side inflation emerges gradually," Yim told reporters Wednesday after an anti- inflation meeting with heads of related ministries.
Rising prices of eating-out and accommodation stemmed from demand-side factors and inflation expectations along with supply shock in raw materials, Yim said, adding that demand-pull inflation needs to be addressed by macro measures.
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