South Korea's Producer-Price Inflation Rate Accelerates to Two-Year High

South Korea’s producer-price inflation rate accelerated to a two-year high, adding to the case for the central bank to raise borrowing costs again.

Producer prices increased 5.3 percent in December from a year earlier, the biggest gain since December 2008, compared with a 4.9 percent climb in November, the Bank of Korea said in a statement in Seoul today. Prices advanced 0.9 percent from November.

Consumer-price growth quickened to 3.5 percent last month, heading toward the central bank’s 4 percent ceiling. The monetary authority has limited benchmark interest-rate increases to two since the end of the global financial crisis, raising borrowing costs by a combined 0.5 percentage point in July and November from a record-low 2 percent.

“The Bank of Korea will likely raise the rate as early as this week to tackle inflation,” said Lee Sung Kwon, an economist at Shinhan Investment Corp. in Seoul. “The central bank and the government should move together preemptively to keep inflation expectations from snowballing.”

The won rose 0.1 percent to 1,120.80 per dollar at 10:35 a.m. in Seoul, trading near an eight-week high, according to data compiled by Bloomberg. The benchmark Kospi stock index fell 0.1 percent.

The government said last week it will announce around Jan. 13 measures aimed at stabilizing consumer prices after President Lee Myung Bak called for a “war” against inflation.

Monetary policy will focus on price stability this year and aim to keep consumer-price growth at 2 percent to 4 percent from 2010 through 2012, the central bank said Jan. 6.

Governor Kim Choong Soo and the board are scheduled to meet to decide interest-rate policy on Jan. 13. Five of nine economists surveyed by Bloomberg News predict no change in borrowing costs, while the remainder expects a 0.25 percentage- point increase to 2.75 percent.

To contact the reporter on this story: Eunkyung Seo in Seoul at eseo3@bloomberg.net.