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Soaring energy costs push up inflation growth to over 4% in March

This photo, taken Sunday, shows gas prices at a filling station in Seoul, amid soaring energy costs. (Yonhap)
This photo, taken Sunday, shows gas prices at a filling station in Seoul, amid soaring energy costs. (Yonhap)

South Korea's consumer prices grew more than 4 percent for the first time in more than 10 years in March as energy prices jumped amid Russia's invasion of Ukraine, data showed Tuesday.

The consumer prices rose 4.1 percent last month from a year earlier, accelerating from a 3.7 percent on-year gain in February, according to the data compiled by Statistics Korea.

Consumer inflation exceeded 4 percent for the first time since December 2011, when consumer prices climbed 4.2 percent on-year.

Inflation topping the 4 percent level came after consumer prices grew more than 3 percent for the fifth straight month in February. Inflation growth stayed above 2 percent -- the central bank's inflation target over the medium term -- for the 12th straight month in March.

Inflation pressure has built up due to the extension of the economic recovery momentum and oil prices surging on supply concerns over Russia's war with Ukraine.

The statistics agency said most of last month's price gains were driven by a hike in prices of petroleum products.

"There are concerns that price pressure could further rise due to the Ukraine crisis. For the time being, the possibility that inflation growth will sharply slow is not high," Eo Woon-sun, a senior Statistics Korea official, told reporters.

Dubai crude, South Korea's benchmark, soared to $101.84 per barrel Monday, sharply up from $77.12 at the end of last year. It hit a yearly high of $127.86 per barrel on March 9. South Korea depends mainly on imports for its energy needs.

The government decided to cut fuel taxes by a record 30 percent from the current 20 percent starting in May for three months in a bid to ease people's burden from energy costs.

Last month, the country decided to extend a 20 percent cut in fuel taxes by three months until end-July. The measure, introduced in November last year, is set to expire at the end of April.

Core inflation, which excludes volatile food and oil prices, advanced 2.9 percent on-year last month.

Another gauge of core inflation, which excludes prices of agricultural and petroleum products, gained 3.3 percent, the fastest climb since December 2011.

Prices of petroleum products jumped 31.2 percent on-year in March, accelerating from a 19.4 percent rise in February, due to surging energy costs.

Demand-pull price pressure also remains high amid the economic recovery.

Personal service prices gained 4.4 percent as people increased their outdoor activities amid the vaccine rollout. The price of dining out rose 6.6 percent on-year, the fastest jump since April 1998.

Prices of processed food also gained 6.4 percent on-year, the fastest rise since April 2012.

Prices of daily necessities -- 141 items closely related to people's daily lives, such as food, clothing and housing -- climbed 5 percent on-year in March.

Prices of agricultural, livestock and fisheries products rose 0.4 percent on-year in March, slowing from a 1.6 percent increase a month ago.

The Bank of Korea (BOK) expressed concerns that inflation will be under more upward pressure going forward, calling for close monitoring on the possibility of inflation expectations being translated into higher prices.

"Going forward, consumer prices will likely stay over 4 percent for the time being as crude, grain and other commodity prices are rising in the wake of the Ukraine crisis," the central bank said in a press release after holding a meeting on inflation.

"And on an annualized basis, they could far exceed the outlook of a 3.1 percent rise presented in February," it added.

The central bank is widely expected to continue tightening its monetary policy in the coming months to tame inflation.

In February, the BOK froze the benchmark interest rate at 1.25 percent after hiking it three times by a combined 0.75 percentage point since August last year. It forecast annual inflation to grow 3.1 percent this year.

Meanwhile, experts voiced concerns the potential creation of another extra budget is likely to stimulate inflation.

President-elect Yoon Suk-yeol promised to use some 50 trillion won ($41 billion) to compensate small merchants for their losses caused by tighter virus restrictions. He vowed to resort to a cut in non-priority expenditures to finance his spending plan, but a debt sale may be inevitable.

The presidential transition team said it plans to check whether the creation of an extra budget will affect inflation and interest rates. (Yonhap)

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