The Bank of Korea Says "2% Inflation Rate Will Continue Next Year"

Report on the Operation Status of the Price Stability Target

[Sejong=Asia Economy Reporter Son Sunhee] The Bank of Korea forecasted that the inflation rate will remain in the '2% range' next year as well. It is expected that the high inflation trend exceeding the government's inflation stabilization target (2.0%) will continue next year following this year.

On the 15th, the Bank of Korea released this inflation outlook through the 'Inflation Stabilization Target Operation Status Review Report.' The Bank stated, "Going forward, the consumer price inflation rate is expected to exceed the inflation stabilization target for a considerable period due to increased demand-side inflationary pressures alongside economic recovery," adding, "Next year, the impact of supply factors such as agricultural and livestock product prices and oil prices will decrease, resulting in a somewhat lower rate than this year, but the inflation rate is expected to remain in the 2% range."

In particular, regarding the 'core inflation' (index excluding agricultural products and petroleum products), which shows the underlying trend of inflation excluding temporary supply factors, the Bank explained, "Following an increase exceeding 1% this year, it is expected to rise significantly to a level close to 2% next year," and "As the economic recovery continues, inflationary pressures due to global supply chain disruptions are expected to increase, especially centered on durable goods."

Uncertainties due to global supply chain disruptions and the spread of COVID-19 have further increased. The report identified ▲continued high rises in international raw material prices ▲prolonged global supply bottlenecks ▲expansion of consumption recovery ▲rising inflation expectations as upward risks to inflation. Conversely, ▲slowing consumption recovery due to the spread of new variant viruses ▲declines in international raw material prices such as oil were noted as downward factors. The Bank of Korea stated, "Upward risks are somewhat dominant in the future inflation path."

Regarding international oil prices, which have driven global inflation since the second half of this year, citing major forecasting institutions, it was expected that "energy raw material prices, which have maintained a high upward trend as supply constraints gradually ease after the winter season, will generally stabilize downward." However, even if raw material prices stabilize due to improved supply and demand conditions, they are expected to remain at a high level compared to the pre-COVID-19 crisis period.

The report also added, "On the demand side, as exports are expected to maintain a favorable growth trend and private consumption recovery continues, inflationary pressures are expected to increase." It forecasted that downward pressure on prices due to government policies such as fuel tax reductions will continue until the first half of next year.

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