South Korea's inflation rate is widely expected to hit a yearly high in August mainly due to spiking prices of agricultural products, raising concerns that inflationary pressure may further build up despite the government's anti-inflation efforts, officials said Sunday.
The country's consumer price growth is forecast to top July's 4.7 percent gain, likely marking the eighth straight month that consumer prices have grown over the government's renewed annual inflation target of 4 percent for the year.
Last month, core inflation, which excludes volatile oil and food costs, also jumped 3.8 percent from a year earlier, the largest gain in 26 months.
Last week, Finance Minister Bahk Jae-wan said the country's inflation is likely to be higher than expected in August as prices of vegetables and other products remain high, adding that the government will take extra steps to stabilize prices before the Chuseok holidays in September.
"Prices of vegetables are rising significantly due to heavy rains in July, with costs of pork, processed goods and many other items increasing as well," said Yoon Jong-won, director general of the finance ministry's economic policy bureau. "The August inflation is likely to top July's figure," he said.
The government recently revised upward its annual inflation target for this year from 3 percent to 4 percent.
The renewed target, however, seems to be getting tougher to achieve as there are few signs of inflationary pressure letting up any time soon with many other factors poised to drive up prices.
Heavy rainfall that devastated some of the nation's farmlands in July is continuing to disrupt the supply of farm goods, driving up prices of vegetables and fruits.
Inflationary pressure might go up further in the second half as the government is poised to raise major public service charges.
For starters, the government hiked electricity charges by 4.9 percent this month in order to reflect rising power production costs.
At the same time, the accelerating price hike might be turning up pressure for the Bank of Korea to raise its key interest rate, although the central bank kept its key policy rate unchanged.
South Korea's central bank froze the key interest rate at 3.25 percent for August for the second straight month as the grim global economic outlook, sparked by a U.S. rating cut and eurozone debt fears, overshadowed persisting inflation woes.
South Korea's economy is facing heightened uncertainties at home and abroad amid worries over a double-dip recession in the U.S. and the persistent eurozone debt crisis.
The South Korean economy grew 0.8 percent on-quarter during the April-June period, the slowest growth since the final quarter of last year, as export gains sharply eased amid global economic uncertainty.