South Korea’s inflation rose as food and fuel prices surged

South Korea’s inflation jumped 3.6% in January, driven by higher food and fuel prices. It adds to the pressures on the central bank to raise policy rates.

According to preliminary data from the Ministry of Strategy and Finance, prices of goods bought by consumers rose at a faster-than-expected 3.2% pace, after jumping 3% in December. The data in January were much more robust than market expectations for a 2.7% increase. The uptick led to higher food prices, particularly meat and vegetables.

The Bank of Korea raised interest rates for a fourth consecutive month in January, with South Korea’s consumer inflation hovering near a decade-high on surging fuel and food prices, boosting the case for further rate hikes in 2022. The central bank blamed the slowing economy on external trade tensions rather than aggressive rate hikes. Data showed that the economy grew at its slowest pace in over two years in the final quarter of 2021. Inflation hit a decade high in December, increasing pressure on the central bank to raise interest rates.

Inflation in neighboring countries

Japan’s consumer prices rose 3.6% from a year earlier in January, beating a 3.3% gain expected and remaining above the central bank’s 2% target for a 10th straight month. The result showed the economy had to push further to reach the BOJ’s target, which could put more pressure on the Nikkei 225 stock index. Retail prices rose faster than forecast, while core prices were higher than expected. Still, the core index might remain below the 2% target in the coming months.

Core inflation jumped 2.6% from a year earlier, the strongest pace since December 2015. It signifies that surging fuel prices and other raw materials have fed through to other goods and services. The faster-rising core inflation number, if sustained, can offer additional ammunition to the Federal Reserve as it considers when to begin raising interest rates again.