Inflation soars in South Korea

Inflation in South Korea is at its highest rate since September 2000. Story Tools

SEOUL, South Korea (Reuters) -- South Korea said on Monday consumer inflation hit its highest level for 30 months in March, as the impact of firm oil prices on the world's fourth-biggest oil importer reinforced a stronger price trend since October.

The country's headline inflation rate stood at 1.2 percent in March, marking its highest level since September, 2000, when it was 1.3 percent, the National Statistical Office (NSO) said.

The monthly consumer inflation rate was sharply higher than the 0.7 percent forecast in a Reuters poll of 10 economists conducted last week.

Analysts said inflationary pressures were still mounting, particularly now that an early end to the U.S.-led military campaign in Iraq appeared unlikely.

"The surge in inflation is frightening because it has come at a time when the economy is suffering from low demand," said Lee Soo-hee, an economist at the Korea Economic Research Institute.

"The problem is that there is very little we can do to quell inflation because it is being fueled by cost-push factors."

Monthly consumer inflation averaged 0.3 percent in 2002, but rose to 0.6 percent in February as fears of a war in Iraq helped drive up oil prices.

Year on year, inflation measured by the consumer price index (CPI) stood at 4.5 percent in March, versus February's 3.9 percent and 2.3 percent a year ago, the NSO said.

Core inflation, stripping out volatile food and fuel prices, was 3.4 percent in March from a year earlier, up from 3.0 percent in February.

South Korea depends entirely on imports for crude, making it especially sensitive to fluctuating world prices.

"The sharp rise in March inflation is largely due to high oil prices," said Je Jung-bon, director of the NSO's price statistics division. "In addition, price hikes for transportation and education charges all came at the same time in March. Oil price hikes also began affecting other prices, for example, for vegetables."

He said the surge in consumer inflation could be a short-term event because service charges were expected to stabilize after a one-off rise in March.

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