BOK: "US Inflation Rate, Temporary Factors Contribute 60%"

Prolonged Housing Price Increase and Rising Labor Demand as Factors for Inflation Possibility

[Asia Economy Reporter Eunbyeol Kim] It has been revealed that about 60% of the unexpectedly high increase in the U.S. Consumer Price Index (CPI) for April is attributed to temporary factors. Although temporary factors played a significant role, the continuous rise in housing prices and the increase in labor demand due to economic recovery are evaluated as potential long-term inflationary pressures.

On the 17th, the Korea Bank Foreign Exchange Operations Department stated in the 'International Financial Market Trends and Key Issues' report, "Major investment banks (IBs) assess that this CPI increase was largely influenced by temporary factors such as used cars, rental cars, lodging, airlines, and dining out," adding, "The contribution of temporary factors is about 60%, while relatively long-term inflation factors saw housing costs rise by 0.4%."

Last month, used car prices in the U.S. jumped by 10.0% compared to the previous month, and rental car prices surged by 16.2%. Prices for lodging (7.6%) and airlines (10.2%) also showed temporary upward trends.

The Bank of Korea noted that the market is paying attention to the possibility of intensified inflationary pressure from housing costs, which account for 33% of the CPI components. While housing supply has decreased, housing demand has been maintained due to low mortgage rates and income increases, resulting in housing prices rising in 182 out of 183 major U.S. metropolitan areas. Among these, 89% saw prices increase by more than 10% compared to a year ago. Cr?dit Agricole, France's largest financial group, stated, "Considering the time lag effects of housing prices on rents and others, housing costs may act as an inflationary pressure during next year."

However, there remains a possibility that the relationship between housing prices and housing costs has somewhat weakened, as housing demand is still increasing mainly in resort or suburban areas, which may mean that rising house prices do not directly cause inflation.

The market is also paying attention to the possibility that increased labor demand due to economic recovery could lead to wage increases, which in turn could act as a long-term inflationary pressure through rising production costs. With long-term leaves reducing workers' capabilities and limiting their return to the labor market, and unemployment benefits being paid which encourages avoidance of employment, the labor supply has decreased, contributing to wage increase pressures.

However, Bank of America (BoA) and Morgan Stanley have expressed the view that "with the expansion of COVID-19 vaccinations, expiration of unemployment benefits (September), and school reopening (September), labor supply will increase, making wage increase pressures temporary."

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