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South Korea’s June inflation hits 24-year high, raising expectations for a big rate hike

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A photograph exhibiting employees organising scaffolding beneath the emblem of the Bank of Korea at its headquarters in Seoul on January 14, 2022. South Korea’s June inflation accelerated to the quickest tempo because the Asian monetary disaster, fanning expectations the central financial institution may ship a 50 foundation level rake hike for the primary time subsequent week to chill costs and curb capital outflows.

Jung Yeon-je | Afp | Getty Images

South Korea’s June inflation accelerated to the quickest tempo because the Asian monetary disaster, fanning expectations the central financial institution may ship a 50 foundation level rake hike for the primary time subsequent week to chill costs and curb capital outflows.

The shopper worth index (CPI) rose 6.0% in June from a 12 months earlier, authorities information confirmed on Tuesday, the quickest since November 1998 and exceeding the central financial institution’s 2% goal for the fifteenth consecutive month.

The CPI additionally sped up from a 5.4% rise within the earlier month and exceeded the 5.9% tipped in a Reuters ballot.

Tuesday’s information comes after Bank of Korea Governor Rhee Chang-yong mentioned he’ll hold the door open for a doable 50 foundation level hike as he displays key financial information earlier than the financial institution’s subsequent rate determination on July 13.

A half-percentage-point curiosity rate enhance, if delivered, would be the first-time within the central financial institution’s historical past.

In a assembly held after inflation information launch, BOK deputy governor Lee Hwan-seok mentioned the financial institution “needs to be particularly vigilant against further strengthening of inflationary expectations,” including present inflation developments will proceed for the time being.

September futures on three-year treasury bonds rose 0.15 factors, whereas these on 10-year bonds gained 0.09 factors. The Kospi was up 1.77% at 2,341.08 and the gained edged up.

The BOK has delivered 5 25-basis-point curiosity rate hikes since final August to 1.75%, the best since mid-2019, becoming a member of a international wave of coverage tightening as central banks grapple with worth spikes not seen in a long time.

Chances of a 50 foundation level hike have been rising after the U.S. Federal Reserve in June raised its rate by 75 foundation factors.

Many market watchers speculate the BOK would wish to hold the rate unfold between South Korea and the United States in verify to sluggish any capital outflows.

“This data raises possibility of a big step hike in July,” mentioned Ahn Jae-kyun, an analyst at Shinhan Financial Investment.

“Inflation expectations are also at a high level, so even if the headline inflation didn’t hit 6%, the BOK now has all the right reasons go for a big step.”

The BOK sees the inflation trajectory larger than projected earlier and mentioned it will carefully assess debt reimbursement burdens to find out whether or not a half-percentage level hike could be acceptable.

Even so, analysts have been warning that family debt at a report stage and slowing exports development imply the BOK should not rush rate hikes.

Overseas gross sales of South Korean items logged their slowest development in 19 months in June, fueling issues concerning the well being of the economic system.

“Policymaking will become all the more difficult as they have a mix of upside inflation risks and downside economic growth risks continuing for the time being,” mentioned Park Seok-gil, an analyst at JPMorgan Chase Bank. “We expect a 50 bp rate increase in July by the BOK and three 25-bp increases for the rest of this year.”

The core CPI, which excludes unstable meals and power costs, rose 3.9% from a 12 months in the past, the quickest tempo since February 2009.

The June CPI rose 0.6% on a month-to-month foundation, additionally exceeding a 0.5% rise seen within the survey.


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