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Economy

Inflation in Korea nears decade high, fuels fears of more rate hikes

Consumer price up 3.2% on-year in October, fastest pace since Jan 2012; exports up 24%

By Nov 02, 2021 (Gmt+09:00)

A customer examines fruit at a hypermarket in Seoul
A customer examines fruit at a hypermarket in Seoul

South Korea’s consumer inflation accelerated to a near-10-year high in October, while exports reported an eighth straight month of double-digit growth, adding to expectations that the central bank may raise interest rates further this year.

The consumer price index soared 3.2% last month from a year earlier, the fastest growth since January 2012, government data showed on Nov. 2.

Industrial product prices grew 4.3% with petroleum costs surging 27.3% on higher crude prices, according to Statistics Korea. Service prices rose 3.2%, while costs for housing rentals increased 1.8%.
Consumer inflation
Unit: %

Source: Statistics Korea

Graphics by Jerry Lee


Such inflationary pressure is more likely to prompt the Bank of Korea to raise its policy rate at the Nov. 25 meeting. The central bank ramped up the base rate in its first tightening in almost three years.

Governor Lee Ju-yeol last month indicated the BOK could increase borrowing costs as early as November to slow inflation and housing debt.

Asia’s fourth-largest economy grew slower than expected in the third quarter, but is expected to find support from the country’s plans to gradually phase out COVID-19 restrictions from this month. The government has begun easing pandemic measures, including a lifting of curfews on restaurants and cafes.
Customers toast at a restaurant in South Korea on Monday, Nov. 1, the day the government eased anti-COVID-19 measures.
Customers toast at a restaurant in South Korea on Monday, Nov. 1, the day the government eased anti-COVID-19 measures.

EIGHTH STRAIGHT MONTH OF DOUBLE-DIGIT GROWTH


Exports rose 24% to $55.6 billion in October from a year earlier, marking an eighth consecutive month of double-digit growth, Ministry of Trade, Industry and Energy data revealed on Nov. 1. The value was shy of the record-high $55.8 billion posted in September.

The country’s overseas sales totaled $523.2 billion in the first ten months, topping $512.5 billion for the entire 2020.

The ministry expected exports in 2021 to exceed the previous record of $604.9 billion posted in 2018 as the pace of overseas shipments is faster than three years ago.

Annual export value
Unit: billion dollars

※ Data for 2021 is a total value of the first 10 months.

Source: Ministry of Trade, Industry and Energy

Graphics by Jerry Lee



Export growth
Unit: %

※ year-on-year

Source: Ministry of Trade, Industry and Energy

Graphics by Jerry Lee


Semiconductor exports surged 28.8% to $11.2 billion last month, leading to overall export growth. Overseas sales of system chips, whose values are higher than memory chips, accounted for 31% of semiconductor exports so far this year, up from 20.9% in 2018.

Petroleum product exports surged 138.1%, while exports of petrochemicals jumped 68.5%. Steel exports also soared 48.6%.

Meanwhile, automobiles and car parts exports slipped 4.7% and 1.2%, respectively, as the sustained global automotive chip shortage continued to bite the industry.

Surging commodity prices are expected to weigh on exporters. The Middle East crude benchmark Dubai rose to an average of $81.585 a barrel last month, the highest since 2014, according to Reuters. That pushed up crude oil imports value by 82.9%. Imports of liquefied natural gas (LNG) and bituminous coal jumped 146.2% and 83.6%.

The higher costs of raw materials are predicted to pull down the trade balance. A trade surplus in October shrank by 70.5% to $1.7 billion from a year earlier. The surplus totaled $27 billion in the first ten months, down 16.7% on-year.

“We will try to keep the current exports momentum by actively managing risk factors such as the logistics crisis, surging commodity prices and parts shortages,” said Moon Dong-min, a deputy minister for trade and investment.
Containers unload at Busan Port
Containers unload at Busan Port


Write to Eu-Jin Jeong at justin@hankyung.com

Jongwoo Cheon edited this article.

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