SEOUL, July 1 (AFP): South Korea's annual inflation rate was 5.5 per cent in June, close to a 10-year high due to soaring prices of oil and other commodities, official figures showed today.
The year-on-year rise in the consumer price index was the biggest since a 6.8 per cent climb in November 1998, the National Statistical Office said. Month-on-month, the figure rose 0.6 per cent.
The government of President Lee Myung-Bak, who won office last December with a pledge to revitalise the economy, says it is now putting priority on fighting inflation rather than growth.
The central bank earlier Tuesday raised its inflation forecast for the whole year to 4.8 per cent from a 3.3 per cent earlier estimate. This would be the highest figure since 7.5 per cent in 1998.
In the second half, inflation is forecast to hit 5.2 per cent on rising energy prices and a weaker won which makes imports dearer, it said.
The June figure breached the central bank's inflation target range of 2.5-3.5 per cent for a seventh straight month.
South Korea, the world's fifth-largest crude buyer, relies entirely on imports for its oil needs.
The inflation rise could put pressure on the central bank to increase its key interest rate this month. The bank froze the rate at five per cent for a tenth month in June.
Meanwhile, South Korea's economic growth is expected to slow to 4.6 per cent this year due to soaring oil prices and sluggish domestic demand, the central bank said today.
The growth projection by the Bank of Korea has been revised down from its 4.7 per cent initial estimate last December. Growth in 2007 was 5 per cent.
The bank said Asia's fourth-largest economy is expected to expand 3.9 per cent year-on-year in the second half, lower than its initial projection of 4.4 per cent.
But the economy is estimated to have grown 5.4 per cent in January-June thanks to brisk exports, up from the previous forecast of 4.9 per cent.
"The Korean economy is expected to lose steam as domestic demand weakened on soaring oil prices, although exports will likely continue their upturn," the central bank said in a statement.
Exports, which account for about 40 per cent of the country's GDP, are forecast to grow 9.8 per cent this year, down from a 10.3 per cent expansion estimate earlier. Domestic demand will likely slow to 3 per cent in 2008, compared with an earlier prediction of 4.3 per cent.
The government of President Lee Myung-Bak, who won office last December with a pledge to revitalise the economy, has targeted six per cent growth this year but even senior officials admit this is now optimistic.
