Korea Inflation May 2008

South Korean hopes for lower interest rates have been significantly reduced by the latest government figures showing that inflation surged to a seven-year-high last month on rising commodity prices and the weaker won.Consumer prices rose 4.9 per cent in May from a year earlier, after climbing 4.4 per cent in April, well above the Bank of Korea’s target range of between 2.5 per cent and 3.5 per cent.



The weaker won – it has depreciated more than 10 per cent against the dollar this year – is adding to pressure on policymakers, who are struggling to tame inflation as record-high oil prices dent economic growth. South Korea is the world’s fifth-largest importer of crude oil.

High inflation is dampening consumer spending in Asia’s fourth-largest economy, although the country is holding up relatively well due to robust exports. Exports were up 27.2 per cent at $39.5bn (€25.4bn, £20.1bn) in May from a year ago, while imports grew 28.8 per cent to $38.5bn, resulting in a trade surplus of $1bn – the first positive figure in the past six months. The increase was driven by strong demand for Korean ships, mobile phones and flat screens from emerging economies such as China and those in the Middle East.

The South Korean economy grew 5.8 per cent in the first quarter from a year ago.