August 6, 2012

World crop prices hike may boost South Korea's inflation

South Korea's inflation may be boosted by spiking global crop prices and may further weigh on overall food costs.

The Bank of Korea (BOK) forecast in its latest report that continuing droughts in the US would further drive up global grain prices.

"The recent surge in crop prices will exert upward pressure on inflation here, as Korea relies heavily on imports for its grain consumption," the BOK said in the report. Asia's fourth-largest economy relies on imports for almost all of its corn and wheat consumption.

The cost of wheat futures stood at US$8.88 per bushel as of end-July in the global crop market, surging 20.2% from a month earlier. Corn futures also jumped 19.9% over the cited period, with the price of soy also rising 17.21%, according to BOK data.

The rapid increase in crop prices came as major grain exporters have suffered from severe droughts, and an inflow of speculative buying into the futures market has been pushing up prices, the BOK noted.

"The harvest is worsening due to severe droughts, as seen in the US with its worst situation in 55 years," the report said.

South Korea's food prices have spawned concern in recent weeks among local policymakers, as the costs have remained high despite the overall stabilisation of consumer prices.

The consumer prices grew 1.5% on-year in July, the slowest pace in 12 years, according to the Statistics Korea.

Finance Minister Bahk Jae-wan on Thursday (Aug 2) pledged to cushion risks from a possible failure to purchase sufficient grain products in the face of rising international crop prices.