Will This Year's Inflation Rate Forecast Rise to the 3% Range? "Significantly Exceeding Last Year's 2.5%" (Comprehensive)

Number of Items with Prices Rising Over 2% Increased from 132 to 239

[Asia Economy Reporter Seo So-jeong] The Bank of Korea recently noted that inflationary pressures are no longer limited to certain items such as petroleum products but are spreading to core items (excluding food and energy), and it is expected that this year's consumer price inflation rate will be significantly higher than last year's 2.5%.

With the possibility of Russia's invasion of Ukraine raising tensions, inflation continues to rise, and this year's consumer price inflation forecast is expected to increase to around 3%.

According to the "Assessment of the Spread of Inflationary Pressures" released by the Bank of Korea on the 13th, South Korea's consumer prices have maintained a high increase rate of over 3% since October last year, while the inflation diffusion index, which indicates the proportion of items with rising prices, has also continued to rise.

According to the Bank of Korea, the inflation diffusion index recorded 68.0 in December last year and 67.9 in January this year. Reviewing the diffusion index data since 2005, December last year was found to be the highest level within the time series.

Oh Kang-hyun, head of the Price Trends Team at the Bank of Korea's Research Department, explained, "The number of items with prices rising more than 2% surged from 132 in January last year to 239 in January this year."

In particular, the recent spread of inflation is higher than during past periods of rapid price increases in 2008 and 2011. Inflationary pressures are spreading beyond certain items like petroleum products to core items.

Within core items, the spread of price increases in dining-out items was notably evident. As of December last year, prices of 38 out of 39 dining-out items, excluding coffee, rose compared to a year earlier, with 32 of these items increasing by more than 3%.

In January this year, coffee prices also rose, increasing the number of items with price increases over 3% to 34, up from the previous month. The rise in dining-out prices accelerated in the latter half of last year, significantly exceeding usual levels, and continued to expand this year, with the month-on-month increase rate in January (1.0%) reaching the highest level since 1998.

The Bank of Korea expects dining-out prices to continue rising this year due to persistent upward pressure from demand recovery and increased raw material costs, as well as strong downward price rigidity.

Additionally, inflationary pressures due to global supply bottlenecks have gradually become more apparent, especially in some durable goods such as automobiles and furniture.

Prices of automobiles and furniture rose intensively in the second half of last year, particularly in the fourth quarter, and the spread of inflation in these items was significantly higher than in other durable goods.

Durable goods prices are expected to face stronger upward pressure this year compared to last year due to rising raw material prices, exchange rate increases, and delays in resolving global supply disruptions caused by the spread of COVID-19 variants.

Oh said, "The recent spread of inflation somewhat exceeds the levels seen during past rapid inflation periods. As inflation spreads more widely and price increases surpass target levels, if inflation expectations rise, it could act as an additional inflationary pressure. Therefore, it is necessary to manage economic agents' inflation expectations stably."

Accordingly, the Bank of Korea is highly likely to significantly revise upward its consumer price inflation forecast for this year, previously announced at 2.0% in November last year, to around 3% in the revised economic outlook to be released on the 24th, reflecting soaring prices.

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