South Korean Consumer Prices Probably Rose by Least in 4 Months

By William Sim

Oct. 1 (Bloomberg) -- South Korea's inflation probably slowed in September, indicating prices may have peaked and giving the central bank scope to consider an interest-rate cut to bolster flagging economic growth.

Consumer prices rose 5.3 percent from a year earlier, the smallest increase in four months and cooling from a 5.6 percent gain in August, according to the median estimate of 15 economists surveyed by Bloomberg. Inflation reached a 10-year high in July. The report is due at 1:30 p.m. in Seoul today.

Asia's central banks have started to lower borrowing costs to counter the effect of the U.S. financial crisis on their export-dependent economies as inflation peaks. Still, a weaker won and increases in power costs may keep consumer prices elevated in South Korea, making it difficult for interest-rate reductions soon.

``A rate cut is possibly looming as the economy faces a higher risk of slower growth and a reduced risk of inflation,'' said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul, who expects a 25 basis-point rate cut by the end of 2008.

Bank of Korea Governor Lee Seong Tae and his board kept the benchmark rate unchanged at an eight-year high of 5.25 percent in September. Their next decision is due on Oct. 9.

The bank raised borrowing costs for the first time in 12 months in August to prevent an oil-led pickup in inflation from leading to a surge in wages and more widespread price increases. One board member opposed the increase, saying higher rates may exacerbate the economy's slowdown.

``The Bank of Korea will actively consider the downside and upside risks to inflation and the economy,'' according to its semiannual report released yesterday to parliament.

Slowing Growth

The economy grew 4.8 percent in the second quarter, the slowest pace in more than a year as households cut spending.

Increased shipments to China and other emerging markets have helped Asia's fourth-largest economy weather the domestic slowdown and U.S. financial crisis.

Exports, which make up more than half of gross domestic product, surged 27 percent in September from a year earlier after rising 18.7 percent in August, a separate survey of economists showed.

Taiwan cut borrowing costs on Sept. 25, joining China, Australia and New Zealand in easing the price of money last month. Inflation rates have slowed in Thailand and Sri Lanka, and policy makers in the Philippines, India and Indonesia forecast price gains will cool before the end of the year.

Inflation Fight

Lower borrowing costs may spur growth as the economies of the U.S., Europe and Japan weaken and the deepening credit crisis threatens to tip the world into a recession. Still, some analysts say the inflation fight isn't over and that loose monetary policy or a surge in oil costs may spark another bout of higher prices.

Inflation probably will stay high for a while and the economy will keep slowing as weakening local demand offset export gains, the central bank said yesterday.

The Korean won fell to the weakest since 2003 against the dollar yesterday, extending its decline this year to more than 21 percent and making imported goods more expensive

Following are forecasts for consumer prices and trade in September. The trade data is due at 10 a.m. tomorrow.

----------------------------------------------------
Consumer Prices                   YoY%      MoM%
----------------------------------------------------
Median                            5.3%      0.3%
Average                           5.4%      0.4%
High Forecast                     5.8%      0.8%
Low Forecast                      5.0%      0.0%
Number of Participants              15        11
Previous                          5.6%     -0.2%
----------------------------------------------------
Action Economics                  5.3%      0.3%
Citi                              5.2%      0.2%
DBS Group                         5.5%      0.5%
Forecast Pte                      5.2%      ---
Good Morning Shinhan Secs         5.2%      0.2%
Hana Daetoo Securities            5.3%      0.3%
HI Investment & Securities        5.4%      0.4%
HMC Investment Securities         5.7%      0.7%
HSBC                              5.4%      ---
Hyundai Securities                5.3%      0.3%
Mirae Asset Securities            5.3%      0.2%
Moody's Economy.com               5.4%      ---
Samsung Securities                5.0%      0.0%
SC First Bank                     5.8%      0.8%
UBS Securities                    5.5%      ---
====================================================


-----------------------------------------------------
                               Exports   Imports
Trade                            YoY%      YoY%
-----------------------------------------------------
Median                           27.0%     40.0%
Average                          25.3%     40.3%
High Forecast                    37.0%     58.0%
Low Forecast                     14.0%     26.0%
Number of Participants              15        15
Previous                         18.7%     37.0%
-----------------------------------------------------
Action Economics                 25.0%     40.0%
Citi                             27.0%     49.7%
DBS Group                        34.5%     39.7%
Forecast Pte                     28.9%     38.1%
Good Morning Shinhan Secs        29.3%     40.3%
Hana Daetoo Securities           23.4%     41.9%
HI Investment & Securities       29.4%     41.2%
HMC Investment Securities        30.3%     50.9%
HSBC                             15.0%     26.0%
Hyundai Securities               24.2%     39.1%
Mirae Asset Securities           30.0%     46.0%
Moody's Economy.com              17.8%     30.4%
Samsung Securities               14.3%     33.2%
SC First Bank                    37.0%     58.0%
UBS Securities                   14.0%     30.0%
=====================================================

To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net.