By Yang Sung-jin
South Korea’s consumer prices surged at the fastest pace in three years in August and trade surplus shrank sharply as its soaring imports outpaced export gains, data showed Thursday.
The double whammy has set alarm bells ringing over the Korean economy amid lingering worries about the embattled global economy, with the country’s key export markets such as the U.S. facing the possibility of falling into a recession.
According to Statistics Korea data released Thursday, the country’s consumer price index marked a 5.3 percent rise last month from a year earlier, a 36-month peak from August, 2008 when the growth rate stood at 5.6 percent. The August CPI was also up 0.9 percent from July.
Core inflation, which excludes volatile food and energy prices, also climbed 4.0 percent in August from same period last year, the highest level in 28 months. Core inflation rose on-month to 0.3 percent, extending the upward streak for 10 months in a row.
Downpours in August boosted prices for agricultural products, while soaring gold prices also added to the overall rise in consumer prices with jittery investors seeking safe-haven assets following a selling spree of stocks due to debt woes in Europe and the U.S.
“The higher-than-expected consumer prices in August are largely due to the seasonal and one-off factors such as higher agricultural goods and gold prices,” said Yoon Jong-won, head of the Finance Ministry’s economic policy bureau.
“Once the Chuseok holiday period is over, the prices of vegetables and fruits will stabilize, so the consumer prices in September will return to the 4-percent range.”
Despite assurances from the government, the country’s inflation has already topped 4.5 percent in the January-August period. If the current trend continues unchecked, analysts expected the yearly inflation to surpass the government’s target of 4.0 percent.
With inflation growing rapid pace, record-high imports eroded into the trade surplus, which stood at $821 million in August from $6.31 billion tallied in July, according to the Ministry of Knowledge Economy.
The August trade surplus marked the lowest level in 19 months, though it registered the 19th straight month that the country’s trade balance has been in the black.
Korea’s exports slowed to $46.4 billion in August, down from $50.6 billion the previous month. Reduced working days due to summer holidays and fewer orders for the country’s automotives, chips and machinery cut the exports of August by $4.0 billion from a month earlier. Compared with the year-earlier period, however, the export rose a solid 27.1 percent last month.
The spike in global prices of crude oil and other raw materials, combined with a gain in demand at home, led by capital goods, increased the imports to a record $45.6 billion in August, up $1.3 billion from a month earlier. The figure also marked a 29.2 percent increase from a year earlier.
The Finance Ministry said in a separate report that the trade balance figures in August should be understood as a temporary drop, not a sign of structural problem that could drag down the entire economy, which depends heavily on exports for its growth.
Aside from seasonal elements, one notable trend was that exports of ships dipped from $5.3 billion in July to $4.0 billion in August, a factor that cut into the trade surplus.
“Given that exports remain at a high level, it is difficult to conclude that a slowing demand from overseas hurt trade surplus,” the Finance Ministry said in a statement. “In September, seasonal factors will be put out of the picture, so the trade surplus will widen again to some $2 billion.”
The government’s estimate of current account surplus for 2011 is $16 billion and trade surplus target is $29 billion. Current account surplus reached $13 billion in the January-July period, and trade surplus came in at $22.8 billion in the January-August period.
(insight@heraldcorp.com)