S. Korea central bank raises inflation projection

South Korea's central bank Wednesday increased its inflation forecast for this year to a three-year high of 3.9 percent, raising the prospect of an early rise in interest rates. The Bank of Korea, in its revised economic outlook, maintained its December projection of 4.5 percent growth for Asia's fourth-largest economy in 2011. Gross domestic product grew 6.2 percent in 2010 after a 0.3 percent increase in 2009. The bank said the US economic recovery and an expansion in global trade are expected to offset the damage done by higher oil prices. But it raised its 2011 inflation forecast to 3.9 percent from a previous estimate of 3.5 percent. This was "mainly due to supply-side pressures like high oil prices and the outbreak of foot-and-mouth disease", it said in a statement. The growth forecast is the same as that made by the International Monetary Fund on Monday. But its inflation estimate is lower than the IMF's predicted 4.5 percent. South Korea is battling growing inflationary pressure, sparked by strong economic growth and rising oil and food prices. The bank said core inflation, which excludes oil and food prices, is expected to rise to 3.3 percent this year compared to its earlier estimate of 3.1 percent. Its revised outlook came one day after it froze the key interest rate at three percent. Analysts expect an increase in May to combat inflationary pressure. Separate figures released Wednesday showed that the unemployment rate rose in March from a year earlier, but that the number of newly created jobs grew sharply as the private sector continued to expand recruitment. The rate was 4.3 percent last month, up from 4.1 percent a year earlier but down from 4.5 percent in February, Statistics Korea said. The number of working people stood at 23.85 million last month, up 469,000 from a year earlier. It was the second consecutive month that year-on-year job creation has exceeded the 400,000 mark. "Despite a decline in the public administrative sector, health and social welfare, manufacturers and other non-public administrative areas maintained robust job growth," the report said.