S. Korea's inflation may grow in 4 pct-range in Q1: analysts

South Korea's consumer prices may grow in the 4-percent range in the first quarter, as rising raw material costs and food prices are putting upward pressure on consumer inflation, experts said Sunday.

South Korea's central bank, the Bank of Korea (BOK), forecast the country's consumer prices to rise 3.5 percent this year, up from 2.9 percent in 2010. The bank's inflation projection stood at 3.7 percent in the first half of this year.

The BOK said rising raw material costs, including oil prices, and demand-pull inflationary pressure may lead it to revise up its inflation outlook.

"As oil prices are rising faster than expected and demand-pull inflationary pressure is mounting, the first-quarter inflation growth may grow in the 4-percent range," an official at the BOK said.

Growing concerns about higher inflation prompted the BOK to hike the key interest rate by a quarter percentage point to 2.75 percent on Thursday. The decision marked the third rate increase since the onset of the global financial turmoil.   

If consumer prices rise in the 4-percent range in the current quarter, it would marked the steepest expansion since the fourth quarter of 2008, when they rose 4.5 percent. The central bank aims to keep the median inflation target at 3 percent with a margin of plus or minus 1 percentage point for 2010-2012.

South Korea is grappling with growing risks of higher inflation as relatively strong economic growth and rising oil and grain prices are exerting upward pressure on inflation.

The central bank earlier said the country's core inflation, which excludes volatile oil and food prices, will likely shoot up to 3.1 percent this year, higher than a 1.8 percent gain in 2010.    

Mindful of concerns that price instability would undercut the growth momentum, President Lee Myung-bak has declared a "war" on inflation, and the government earlier in the day unveiled a set of anti-inflationary measures, including a freeze in college tuition and public utility charges. The government vowed to contain consumer inflation at around 3 percent this year, while achieving about 5 percent economic growth.

"The consumer prices are likely to grow 4 percent in the first quarter on a hike in raw material prices and the base effect, and in the second quarter, they are forecast to expand around 3.8 percent," said Hong Jung-hye, an analyst at Shinyoung Securities Co.  (Yonhap News)