By Kim Tong-hyung
Korea’s producer prices rose at the fastest pace in 28 months, putting greater pressure on the Bank of Korea (BOK) to raise interest rates.
The producer price index increased 7.3 percent in March from a year earlier, up from a 6.6 percent rise in February, representing the sharpest gain since the 7.8-percent elevation in November 2008, according to the central bank Friday.
The BOK is struggling to contain consumer prices that have been rising significantly faster than the government’s 3 percent target.
They jumped 4.7 percent year-on-year in March, the fastest growth in 29 months, exceeding the 4 percent threshold for the third consecutive month. The sharply rising prices will undoubtedly push up the costs of consumer goods further and may bolster the claim of monetary-policy hawks who say the central bank has been too timid about raising the cost of borrowing.
The BOK has been reluctant to dramatically tighten money supply when the higher prices have been coupled with subduing economic activity. The Lee Myung-bak government’s stubbornness in continuing to put growth before price stability also appears to have slowed the trigger-finger of rate-setters.
Producer price inflation highlights the other side of the BOK’s quandary. Input prices at factories have been driven by the inexorable rise in the costs of fuel, food and other commodities. This suggests that much of the inflationary force in Korea is based on global pressure over which the central bank has no control.
Analysts here offer mixed predictions on whether the BOK will raise its policy rate for April or keep it at 3 percent in its next rate-setting meeting scheduled for Tuesday. The central bank’s monetary policy committee raised the key rate by a quarter of a percentage point in January and March.
``The rise in producer prices were driven by petrol, chemicals, metals and other products directly affected by the rise in international oil and raw material prices,’’ said Park Yeon-sook, an official from BOK’s economic statistics division.
The prices of industrial goods rose 9.1 percent in March year-on-year, compared to a 7.8 percent increase in February, largely due to the rise in fuel costs, the BOK said. The March figures represent the fastest annual gain since the 10.6 percent jump in November 2008.