South Korea March inflation jumps to near 5-year high on food, service costs

By Cynthia Kim and Christine Kim

SEOUL (Reuters) - Consumer price growth in South Korea picked up at the fastest pace in nearly five years in March as the prices of fresh food and services rose, signalling a rebound in domestic demand after months of weakening consumer sentiment over a corruption scandal that led to the ouster of President Park Geun-hye.

The consumer price index rose 2.2 percent in March from a year ago, data showed on Tuesday, up from 1.9 percent in February and marking the fastest rise since similar gains were seen in June 2012.

Inflation at 2.2 percent was ahead of a 2 percent rise projected in a Reuters survey. [nL3N1H6109]

The index remained flat at 0.0 percent from a month earlier, beating the survey's expected 0.2 percent slide.

Core inflation, which strips out volatile food and fuel prices, rose 1.4 percent, slightly down from 1.5 percent in February.

"It is better to have inflation close to 2 percent than somewhere around 1 percent for stronger economic activities," a senior finance ministry official told Reuters after the data was released.

"We will see inflation at around 2 percent through the third quarter due to the base effects of oil prices, before it drops to mid-1 percent from the fourth quarter," he said, asking not to be named as he was not authorised to speak to media.

Fresh food prices jumped 7.5 percent on-year, driven by the prices of tangerines that more than doubled, and cabbages which saw a 91.5 percent jump from a year earlier.

The reading also reflected a pick up in services including a 19.4 percent jump in insurance premiums and a 4.5 percent increase in management fees for apartments.

Tuesday's data followed figures from the trade ministry at r the weekend, which showed imports had surged the most since September 2011. [nL3N1H848W]

The headline inflation overshoots the central bank's inflation target for the first time since it was revised last year to 2 percent, and dims any expectations for further interest rate cuts.

It supports the case that the Bank of Korea will keep interest rates at a record low 1.25 percent while it monitors uncertainties ranging from the pace of Federal Reserve policy tightening and China's responses to Seoul's plans to deploy a U.S.-made anti-missile system.

"The likelihood of further cuts has narrowed significantly, as exports continue to show solid growth," said Stephen Lee, chief economist at Meritz Securities in Seoul.

"Economic indicators released over the past few days show private consumption won't worsen further," Lee said.

(Reporting by Cynthia Kim and Christine Kim; Additional reporting by Dahee Kim; Editing by Eric Meijer)