SEOUL- South Korea’s inflation last month hit the highest since the Asian financial crisis more than two decades ago, adding to signs of building strains on the open, trade-dependent economy and fanning expectations of a big rate hike by the central bank.
Data showed on Tuesday the consumer price index grew a slightly faster-than-expected 6.0 percent in June over a year earlier – the highest since November 1998 – while other data showed foreign exchange reserves shrank by the most since late 2008.
Economists and market experts dismissed any immediate risk of Asia’s fourth-largest economy falling into a crisis as it has several times in the past, thanks to significant improvements in its international balance of payment and debt profile.
But some warned the government and central bank were facing a difficult period.
“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,” said Park Seok-gil, an analyst at JPMorgan Chase Bank.
The high inflation reading did reinforce the case for the central bank’s increase of the policy interest rate by unprecedented 50 basis points at its meeting next week. – Reuters
