SEOUL: South Korea's annual producer inflation hit a 26-month high in January led by food and energy, data showed on Friday, strengthening the case for a second interest rate increase in four weeks later in the day.
The data came after recent figures pointing to Asia's fourth-largest economy heading for a high-inflation, high-growth path prompted analysts to forecast the central bank would increase interest rates at its Friday meeting.
Persistent unrest in Egypt has added to already high global energy prices by sparking worries it would spread across the region and disrupt oil supplies, boding ill for policymakers in many countries battling inflation.
"The producer price data indicates consumer inflation will stay around the current high level for the time being and underscores the market's broad view for aggressive tightening in interest rate policy," said Kong Dong-rak, a fixed-income analyst at Taurus Investment and Securities.
Financial markets showed a muted reaction as investors awaited the outcome from the central bank meeting.
March-delivery futures on three-year treasury bonds were down 0.02 points at 102.42 by 0015 GMT, the won fell 0.1 percent to 1,117.8 per dollar and stocks lost 0.1 percent to 2,006.49 points.
The producer price index in January rose 6.2 percent from a year earlier, the Bank of Korea data showed, marking the fastest annual pace since a 7.8 percent rise in November 2008.
Producer prices of fresh foods rose 46.3 percent over a year earlier and energy prices jumped 9.1 percent, while prices in other categories rose 5.0 percent, the data showed.
From December last year, the producer price index gained 1.6 percent in January, setting the highest monthly growth since a 1.9 percent rise in July 2008.
A majority of the analysts surveyed by Reuters predicted a rate rise on Friday but it was a close call, with eight out of the 21 polled predicting no change this month followed by a raise in March or April.
In January, consumer expectations for inflation over the next year spiked to an 18-month high, actual annual inflation rose above the ceiling of the central bank's 2-4 percent target band and exports grew more than expected to a record amount.
Despite three rate increases during the past seven months, the Bank of Korea is widely seen as lagging behind the curve, with annual consumer inflation staying above the policy interest rate for more than a year.
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