KDI predicts consumer prices to rise 5.2 pct in 2nd quarter

The Korea Development Institute (KDI), a state-run economic research institute, said Friday that consumer prices would rise as high as 5.2 percent in the second quarter of this year, bringing the yearly average to 4.3 percent. The KDI projected that the Bank of Korea would also find it difficult to rein in the basic inflation rate at its target of 3 percent as the rate is expected to top 4 percent.

Cho Dong-Chul, a researcher of the KDI, said in a report that this year`s consumer price increase largely depended on the won`s future movements and the size of rises in public utility fees. He said that a 0.2 of a percentage point increase a month in consumer prices would bring the quarterly rate to 5.2 percent for the second quarter and 3.9 percent for the second half. The yearly average would reach 4.3 percent, he said.

Cho predicted that the yearly average would hit 3.5 percent even if the inflation rate froze at the level of last month through to the year end. ``Even assuming that no additional rises in public utility fees will be made after this month, the chances are high that the growth rate of public fees will serve as a factor to boost the overall increase rate of consumer prices,`` he said.

``In that case, the growth rate of public utility fees will mark increases of 11.2 percent in the second quarter, 7.2 percent in the third quarter and 4 percent in the fourth quarter, compared with the same periods of last year. They will go well beyond the increase rates of consumer prices,`` he said.

The researcher said that chances are slim that the basic inflation rate except for agricultural products and oil would stay below the increase rate of consumer prices. The basic inflation rate was most likely to top 4 percent, he said.

The KDI`s projection indicates that both the government and the central bank will find it difficult to hold consumer price increases to the target level of 3 percent this year.

[Yonhap]