By William Sim
July 30 (Bloomberg) -- South Korea's inflation rate probably accelerated to the highest in almost 10 years in July, adding pressure on the central bank to raise interest rates.
Consumer prices climbed 5.7 percent from a year earlier, quickening from June's 5.5 percent increase, according to the median forecast of 17 economists surveyed by Bloomberg News. That's biggest gain since November 1998. The statistics office will release the report at 1:30 p.m. in Gwacheon on Aug. 1.
Record fuel and food costs have driven up inflation across Asia, prompting policy makers in India, Indonesia, the Philippines, Taiwan and Thailand to boost borrowing costs even as region suffers fallout from the global credit squeeze. The Bank of Korea has kept interest rates unchanged this year and Governor Lee Seong Tae said this month inflation will remain high for a ``significant period'' and economic growth will slow.
``A rate hike seems more likely next week as inflation keeps climbing,'' said Go You Sun, an economist at Daewoo Securities Co. in Seoul. ``Inflation will likely peak in the third quarter.''
The Bank of Korea left its benchmark interest rate at a seven-year high of 5 percent on July 10, as policy makers sought more time to weigh the threat of faster inflation against the risk of slower economic growth. The bank last raised rates in August 2007, and the board's next decision is due Aug. 7.
The central bank aims to keep inflation between 2.5 percent and 3.5 percent, on average, for the three years to 2009.
Slowdown Deepens
Governor Lee and his colleagues face mounting evidence that faster inflation is curbing economic growth by eating into household incomes and squeezing corporate profits.
The economy expanded 4.8 percent in the second quarter from a year earlier, the slowest pace in more than a year. Spending by households, which are burdened with record debt, fell 0.1 percent in the three months ended June 30, the first decline in four years.
Goldman Sachs Group Inc. this week cut its growth forecast for Asia, saying exports are weakening and faster inflation is forcing central banks to raise borrowing costs.
Asia excluding Japan will grow 8 percent in 2008, slower than the 8.2 percent predicted previously and weaker than the region's 9.4 percent expansion last year, the report said.
Adding to signs of slowing growth in South Korea, industrial production rose 7.2 percent in June from a year earlier, the smallest gain in nine months, according to 15 economists in another Bloomberg survey. Factory-output data will be released at 1:30 p.m. in Gwacheon tomorrow.
Exports Increase
As domestic demand moderates, increased exports to China and emerging markets will help keep South Korea's $970 billion economy from cooling too much, the Bank of Korea said on July 10.
Overseas shipments probably surged 29.1 percent last month from a year earlier, after a 16.6 percent gain in June, a separate survey of economists showed. July trade data is due at 10 a.m. local time on Aug. 1.
Net exports -- the difference between exports and imports - - powered more than half of the nation's economic expansion in the second quarter.
Following are forecasts for consumer prices and trade in July and industrial output in June:
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Consumer Prices MoM% YoY%
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Median Forecast 0.5% 5.7%
Average Forecast 0.5% 5.7%
High 0.9% 6.1%
Low 0.3% 5.5%
Forecasts 14 17
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Action Economics 0.5% 5.5%
Citibank 0.5% 5.7%
CJ Investment & Securities 0.6% 5.8%
Daewoo Securities 0.5% 5.7%
DBS Group 0.4% 5.6%
Forecast Singapore Ltd. ---- 6.0%
Good Morning Shinhan Securities 0.5% 5.7%
Hyundai Securities 0.3% 5.5%
ING Bank 0.4% 5.6%
Mirae Asset Securities 0.3% 5.5%
Moody's Economy.com ---- 5.6%
Samsung Economic Research Inst. 0.9% 6.1%
SC First Bank 0.4% 5.5%
Shinhan Bank 0.5% 5.7%
Taurus Investment & Sec. 0.6% 5.8%
Thomson IFR 0.7% 5.9%
UBS Securities ---- 6.0%
====================================================
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Exports Imports
Trade YoY% YoY%
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Median Forecast 29.1% 33.5%
Average Forecast 28.2% 34.2%
High 37.3% 40.6%
Low 13.0% 27.8%
Forecasts 15 15
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Action Economics 21.0% 32.4%
Citibank 29.1% 33.5%
CJ Investment & Securities 30.3% 35.2%
Daewoo Securities 29.0% 35.0%
DBS Group 32.2% 32.8%
Forecast Singapore Ltd. 22.5% 27.8%
Good Morning Shinhan Securities 31.3% 38.5%
Hyundai Securities 32.8% 37.4%
ING Bank 23.0% 30.5%
Mirae Asset Securities 32.4% 37.7%
Moody's Economy.com 28.7% 30.5%
SC First Bank 37.3% 40.6%
Taurus Investment & Sec. 37.1% 37.4%
Thomson IFR 23.1% 30.0%
UBS Securities 13.0% 33.0%
====================================================
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Industrial Production MoM% YoY%
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Median Forecast 0.0% 7.2%
Average Forecast -0.5% 7.2%
High 0.5% 8.5%
Low -2.9% 6.1%
Forecasts 13 15
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Action Economics 0.5% 8.5%
Citibank 0.0% 8.0%
CJ Investment & Securities 0.4% 7.5%
Daewoo Securities 0.3% 7.2%
DBS Group -0.7% 7.3%
Forecast Singapore Ltd. ---- 7.1%
Good Morning Shinhan Securities -1.5% 6.1%
Hyundai Securities -1.0% 6.2%
ING Bank -0.8% 7.0%
Mirae Asset Securities 0.0% 7.6%
Moody's Economy.com ---- 6.5%
SC First Bank -2.9% 7.0%
Shinhan Bank 0.1% 7.3%
Taurus Investment & Sec. -1.2% 6.8%
Thomson IFR 0.4% 8.0%
====================================================
To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net.
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