Due to Price Pressure... Bank of Korea May Raise Inflation Rate Forecast to the 3% Range

Oil Price Trends and Core Item Inflation Review
Likely to Significantly Raise from 2.0%

[Asia Economy Reporter Seo So-jeong] The Bank of Korea is considering revising this year's consumer price inflation forecast to the 3% range within three months, up from the 2.0% forecast made last November. Inflationary pressures are intensifying across the board, not only in petroleum products but also in core items (excluding food and energy), amid escalating tensions in Ukraine.

According to the Bank of Korea on the 14th, in the revised economic outlook to be announced on the 24th, it is reviewing an upward adjustment of more than 1 percentage point from last year's consumer price inflation forecast for this year, closely monitoring core item prices along with international oil price trends.

In particular, geopolitical risks between Russia and Ukraine have raised concerns over soaring international oil prices. On the 11th (local time), the March West Texas Intermediate (WTI) crude oil price on the New York Mercantile Exchange closed at $93.10 per barrel, up 3.6% ($3.22).

This is the first time in 11 years that the annual consumer price inflation rate has exceeded 3%, since it reached 4% in 2011 when international oil prices surpassed $100 per barrel. Last year, consumer price inflation and core inflation rates were 2.5% and 1.8%, respectively. With the rising crisis of the Ukraine invasion, crude oil prices have surged sharply, and the inflation trend is expected to continue for some time, making an upward revision of the inflation rate inevitable.

The consumer price inflation rate has remained in the 3% range for four consecutive months since last October. Until early last year, it was below 1%, but since November, it jumped to the mid-to-high 3% range. In some regions such as Jeju, Gangwon, Gyeongbuk, and Chungnam, the inflation rate has already exceeded 4% for three consecutive months.

Oh Kang-hyun, head of the Price Trends Team at the Bank of Korea's Research Department, said, "The current spread of inflation surpasses the periods of rapid price increases in 2008 and 2011," adding, "It is necessary to manage economic agents' inflation expectations stably." Bank of Korea Governor Lee Ju-yeol also stated at a press conference on the 14th of last month, "This year's inflation rate will exceed last year's 2.5% level and reach the mid-to-high 2% range."

Experts believe that with the Ukraine situation escalating into a military conflict and a critical moment, this year's inflation rate will exceed the 3% range. Kim Jeong-sik, emeritus professor of economics at Yonsei University, said, "Although the Bank of Korea's rate hike is expected to occur in the second quarter after the U.S. Federal Reserve's anticipated increase in March, considering the recent soaring inflation, the possibility of a rate hike in February cannot be completely ruled out."

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