[Monetary Credit Policy Report] "Global Prices Rise 1%P, Domestic Prices Increase by 0.26%P"

Bank of Korea Publishes Monetary and Credit Policy Report
"High Global Inflationary Pressure Expected to Persist Longer Than Anticipated"

[Asia Economy Reporter Jang Sehee] An analysis has shown that if global inflation rises by 1 percentage point, domestic inflation increases by 0.26 percentage points.

On the 9th, the Bank of Korea announced through the Monetary Policy Report (December 2021), approved at the Monetary Policy Committee meeting, that an analysis using an econometric model revealed this impact of global inflation on domestic inflation.

The Bank of Korea analyzed that from 2010 to 2021, a 1 percentage point increase in global inflation leads to a 0.26 percentage point rise in domestic inflation. From 2000 to 2007, it was 0.1 percentage points. As Korea's economy has become more trade-dependent, the influence of global inflation on the domestic market has expanded compared to the past.

The Bank of Korea explained that recently, the synchronization between global inflation rates and domestic consumer price increases has significantly strengthened. The correlation coefficient was 0.28 during 2000-2007, but it rose to 0.78 during 2010-2021.

The Bank of Korea stated that the recent high global inflation rate is due to a combination of factors such as increased demand, sharp rises in international raw material prices, supply bottlenecks, and climate change.

The Bank of Korea expects the high global inflation trend to continue until the first half of next year. Considering delayed resolution of supply bottlenecks, rising wages and inflation expectations, upward trends in housing costs, and climate change, the high inflation trend is expected to last longer than initially anticipated.

In particular, next year, as the idle production capacity in major countries significantly decreases, demand-side inflationary pressures are expected to intensify.

Additionally, the Bank of Korea analyzed that "international raw material prices are also expected to maintain a trend of increase," and "corporate cost burdens will further expand."

Furthermore, the Bank of Korea analyzed that the delayed outlook for easing global supply bottlenecks, rising wages, and housing prices will also act as factors increasing the inflation rate.

The Bank of Korea emphasized, "Since the strong global inflationary pressure is expected to last longer than initially anticipated, it is necessary to continuously and closely monitor its impact on domestic inflation."

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