[Bank of Korea on the Test] "Inflation Hits 7%"... October Peak Theory

JP Morgan Predicts Peak Inflation Period in Korea
Bank of Korea Announces Big Step Rate Hike on 13th

On the 4th, a day before the government's announcement of June consumer price trends, citizens are shopping at Namdaemun Market in Seoul. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Seo So-jung] The consumer price inflation rate in June rose to the 6% range for the first time in 23 years and 7 months, and it is projected to surge to the 7% range by October, reaching its peak. If the 7% range materializes, it will mark the highest level in 24 years since October 1998 (7.2%), a period of rapid inflation. 'The Bank of Korea on the Test Bench'

According to global investment bank (IB) JP Morgan on the 11th, South Korea's consumer price inflation rate is expected to exceed 6% until the end of this year and temporarily surpass 7% in early the fourth quarter. Park Seok-gil, JP Morgan's chief economist, said, "The peak of inflation compared to the same period last year will be in October," adding, "If the current price trend continues, the consumer price inflation rate will remain in the 6% range during the second half of this year, hit the 7% range in October, and then gradually decline."

Accordingly, it is expected that the Bank of Korea will implement a big step by raising the base interest rate by 0.50 percentage points at once at the Monetary Policy Committee meeting on the 13th to respond to high inflation. Chief economist Park said, "Although growth forecasts for the U.S. and Europe have recently been revised downward, inflation levels remain high, and domestically, considering growth and inflation comprehensively, there has been no significant change to alter the big step outlook, so there is a high possibility that a big step will be taken at the July Monetary Policy Committee meeting."

Afterward, it is expected that the base interest rate will be raised by an additional 0.25 percentage points in August, October, and November, reaching around 3.0% by the end of the year in South Korea. If the Bank of Korea takes a big step at the July Monetary Policy Committee meeting as forecasted, it will be the first-ever big step and set a record of 'three consecutive increases.' Previously, the Monetary Policy Committee raised the base interest rate by 0.25 percentage points each in April and May, bringing it to the current 1.75%. If an additional 0.50 percentage points is raised this month, the base interest rate will reach 2.25%.

Experts predict that the inflationary trend will intensify further in the second half of the year. With ongoing global supply chain disruptions and the impact of post-COVID-19 daily life recovery, prices of raw materials and services such as dining out continue to rise. Following a sharp increase in livestock prices, even agricultural product prices, which had been stable, are expanding upward, potentially peaking in October.

There is also a forecast that inflation will peak this month or next month. Joo Won, head of research at Hyundai Research Institute, said, "Recently, international oil prices have fallen, and the global food price index, which surged due to the Russia-Ukraine war, has been declining for three consecutive months, so inflation is expected to peak in July or August."

Regarding the possibility of inflation rising to the 7-8% range, Eo Un-seon, a review officer at Statistics Korea, said, "If the current high rate of increase continues, the possibility cannot be ruled out." Lee Hwan-seok, deputy governor of the Bank of Korea, predicted, "Consumer prices will continue to rise sharply for the time being due to sustained high oil prices, increased demand-side inflationary pressures following the lifting of social distancing, and the impact of electricity and city gas rate hikes."

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