South Korea Inflation Averages 2.5% in 2021; Hits Decade High — Update

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By Kwanwoo Jun
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South Korea’s headline inflation averaged 2.5% in 2021 after remaining above the central bank’s annual 2.0% target for the ninth consecutive month in December.

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The highest annual inflation in Asia’s fourth-largest economy since 2011 justifies the Bank of Korea’s tightening of its easy-money policy that was driven by the pandemic.

The benchmark consumer-price index rose 3.7% in December from a year ago, compared to the previous month’s revised high of 3.8%, the Statistical Office said on Friday. The latest reading matches the average forecast for five economists surveyed by The Wall Street Journal.

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Higher prices of agricultural and industrial products as well as utility services continued to add to inflationary pressures, even as temporary fuel-tax cuts helped moderate price hikes in the country for the month.

Compared to the previous month, the index rose 0.2% in December, a softer pace than the 0.4% increase in the previous month. The latest readings were in line with the median forecast.

The core CPI, which separates volatile energy and food prices, rose 2.2% a year ago, compared to November’s 1.9% gain. It rose 0.4% a month earlier, a faster pace than 0.1% in November.

The Bank of Korea has indicated it will tighten policy to curb inflation as it raised interest rates for the second time in November in 2021.

The bank expects inflation to average 2.0% in 2022, higher than its earlier estimate of 1.5%.

First Deputy Finance Minister Lee Eog-won said on Friday he expects inflation pressures to remain high before gradually easing in the first half of 2022.

Write to Kwanwoo Jun at [email protected]

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