(Adds economist comments, recasts)
By Judy Lee
SEOUL, Sept 30 (Reuters) - South Korean price data on Monday showed inflation was still under control but left analysts concerned that it would soon accelerate.
Economists were not so concerned by the rapid 0.6 percent monthly jump in prices in September, which they attributed to bad weather, but rather the building pressure from housing and oil costs, which they said could forced the central bank to pre-emptively raise interest rates in coming months.
September's rise in the consumer price index (CPI), which is partly adjusted to remove seasonal patterns, compared with 0.7 percent in August, the biggest gain in 17 months. It matched the average 0.6 percent forecast in a Reuters poll of ten economists last week.
The index was 3.1 percent higher than a year earlier, compared with the 2.4 percent rise seen during the year to August.
Economists do not expect the government to push interest rates higher immediately, given doubts that the economy will sustain its recent strong growth.
"I'm biased towards no rate hike in the next policy meeting (on October 10th), even though a certain tightening bias can be in place," said Sung Myung-kee, an economist at Korea Development Institute.
The central bank decided last week to cut the ceiling on loans to financial institutions by two trillion won for the last three months of 2002 to drain excess liquidity.
The move came after the Bank of Korea had expressed concerns about overshooting prices in 2003 and had hinted at a shift in monetary policy towards tightening due to inflationary pressure, stoked by firmer house prices and vigorous consumer spending.
"A series of economic data showes a lack of confidence about continued growth," said Lee Sang-jae, an economist at Hyundai Securities Co. "The external environment, including the weakening U.S. economy and a possible war against Iraq, are also concerns."
WORSENING SIGNS
The latest batch of data showed Asia's fourth largest economy was losing steam amid stuttering growth in the United States and waning domestic consumer demand, Korea's main growth engine.
The Bank of Korea said at the weekend the quarterly index gauging consumer sentiment six months ahead had dropped for two quarters in a row.
Separately, the Federation of Korea Industries, a key business lobby, said its survey of the top 500 firms showed fourth-quarter cash flows would worsen from the previous quarter.
The National Statistical Office (NSO) said September's inflation was driven up by bad weather, such as weeks of typhoons and monsoon rains, which killed more than a hundred people and damaged crops.
"Typhoon Rusa and rising demand from the Chusok (thanksgiving) holidays pushed prices in agricultural products higher, while an end to tax breaks for new car buyers in September also helped the upswing in CPI," an NSO official said.
For example, fresh vegetable prices soared 19.8 percent in September from August and large-automobile prices rose 5.1 percent.
A rise in oil prices linked to the growing prospect of a U.S. strike against Iraq also fanned inflation. South Korea is the world's fourth-largest oil importer and wholly depends on imports for crude.
CORE INFLATION
But core prices, which exclude volatile food and fuel, remained relatively stable. In August they were 0.1 percent higher than in July, and stood 2.9 percent higher than a year earlier. The monthly rise in July was also just 0.1 percent.
"Given the trend, it won't be a problem to meet the central bank's inflation target of three percent," Sung said.
In addition, a presidential election slated for December and deepening worries about the economic outlook may persuade the central bank to delay a rate hike.
The BOK's monetary policy committee has kept its overnight call rate since May when it announced a surprising quarter-point hike to 4.25 percent from a record low of four percent.
South Korea's economy is expected to grow 6.5 percent this year after a three percent rise in 2001, the central bank has forecast.