The Bank of Korea Says "The Possibility of Rapid Inflation in Major Countries Is Limited"

[Asia Economy Reporter Kim Eunbyeol] The Bank of Korea has analyzed that the likelihood of a rapid inflation surge in South Korea and other major countries worldwide is not high.

According to the 'Monetary and Credit Policy Report' submitted to the National Assembly on the 11th, accommodative monetary policies in response to COVID-19 have been reflected in financial markets, causing the expected inflation indicators (BEI, based on 10-year government bonds) in major countries such as South Korea, the United States, Germany, Italy, and Australia to continue rising since March last year. The expected inflation (over the next year) among the general public in South Korea and the United States, revealed through surveys, has also increased recently due to rising international raw material and food prices and expectations of economic improvement.

In the report, the Bank of Korea explained, "While there is general agreement that short-term inflation rates may rise due to the release of suppressed demand after COVID-19 and base effects, opinions diverge regarding the direction of inflation in the medium to long term."

Although factors such as liquidity expansion from large-scale fiscal spending and weakening of the global value chain (GVC) exert inflationary pressures, there are still many factors that suppress inflation, including stable long-term inflation expectations, central banks' response measures to inflation, and sluggish employment.

The Bank of Korea assessed that the possibility of rapid inflation occurring in South Korea and major countries is low. It stated, "Given the ongoing significant uncertainties related to COVID-19, the possibility of a rapid inflation surge in South Korea and major countries is limited. However, if suppressed demand is released due to rapid economic recovery and normalization of economic activities following vaccination, and if international raw material prices rise, the possibility of inflation expanding beyond expectations cannot be ruled out, so the situation must be monitored carefully."

Regarding the possibility of rising domestic long-term interest rates since the second half of last year, it diagnosed that "this is the result of external factors such as global economic recovery and rising interest rates in major countries due to inflation expectations, combined with domestic supply and demand factors such as increased government bond issuance." It added, "Domestic long-term interest rates are expected to continue being influenced by fiscal and monetary policies of major countries, COVID-19 trends, changes in major countries' government bond yields, domestic economic recovery, and government bond supply and demand conditions, so we will monitor closely and respond appropriately."

This content was produced with the assistance of AI translation services.