SOUTH Korea's monthly inflation rate rose to its highest level in three years last month as price gains accelerated despite a series of interest rate rises and slowing economic growth.

The country's Consumer Price Index was 5.3 percent high than the same month last year as the cost of food and transportation rose, according to government office Statistics Korea. This followed an increase of 4.7 percent in July.

The latest figure is the highest since the 5.6 percent recorded in August 2008 and is the first time the index has breached the 5 percent level since September of the same year.

South Korea is battling price pressures along with other countries, including China, where inflation rose to a 37-month high of 6.5 percent in July.

The Bank of Korea, the country's central bank, has raised its interest rate five times since July last year in a bid to stem price gains. The bank last raised its key borrowing cost in June and holds its next monthly policy meeting next week.

The surge in inflation comes as South Korea's economy, Asia's fourth largest, is slowing. Economic growth came in at 0.8 percent in the second quarter, weaker than the 1.3 percent recorded in the first three months of the year.

Separately, South Korea's trade surplus shrank sharply to US$821 million in August from US$6.3 billion in July, as imports rose 29 percent to a monthly record high US$45.56 billion due to sharp increases in the price of crude oil, gas and coal, according to the Ministry of Knowledge Economy. Exports increased 27 percent to US$46.38 billion.

Inflation has now accelerated for three straight months and has been outside the Bank of Korea's stated comfort zone for price increases every month this year.

The central bank's inflation target is 3 percent, but it recognizes a "tolerance range" of plus or minus one percentage point.

Source:shanghaidaily