A Korean government report showed that Korea's consumer prices grew at the fastest pace in seven years in May on higher prices of energy and other commodities, breaching the central bank's inflation target range for a sixth straight month.

According to the National Statistical Office, the consumer price index jumped 4.9% in May from a year earlier. May's annual inflation was the highest since a 5% gain in June 2001. It was also up 0.8% from a month earlier.

Mr Jeon Min kyu an economist at Korea Investment & Securities said that "Inflationary pressure seems to be stronger than had been expected as higher commodity costs and a weak local currency are driving up prices. The data might hurt consumer sentiment, leading to a decrease in domestic demand, which is a key growth engine for the nation's economy."

The Bank of Korea also sets its inflation target range at 2.5% to 3.5% and the Finance Ministry is pushing to keep the inflation rate below 3.5% for this year.

South Korea's economy, Asia's fourth largest, grew by 0.8% in the first quarter of this year, the slowest quarterly expansion since the fourth quarter of 2006, on sluggish domestic consumption and corporate spending. The BOK forecast that the economy will grow 4.7% in 2008 down from a 5% expansion in 2007. The government aims to achieve growth of some 6% but it recently admitted that the economy has reached its peak and is now entering a downward phase.