The Bank of Korea: "China's Reopening, Public Utility Price Hikes... Inflation Slowdown Likely to Be Delayed"

[Image source=Yonhap News]

The Bank of Korea explained that although the inflationary trend is gradually slowing down, the pace of deceleration may be slow due to factors such as China's reopening (resumption of economic activities) and increases in public utility charges.

On the 2nd, the Bank of Korea stated in its BOK Issue Note report titled "Changes in Inflation Conditions and Review of Major Risks," "Consumer prices are expected to continue their slowing trend in the future, but considering recent changes in conditions, there is significant uncertainty regarding the pace of deceleration."

First, the Bank of Korea explained that international oil prices may rise due to increased demand following China's reopening. The developments in the Ukraine situation and concerns over supply disruptions caused by Russian production cuts also pose upside risks to oil prices, creating a high level of uncertainty.

Additionally, there is considerable uncertainty regarding the magnitude and timing of public utility fee increases, and the expectation that electricity and city gas rates will be further raised this year could also act as upward pressure on inflation.

The Bank of Korea analyzed, "Since increases in public utility charges directly and indirectly raise the consumer price inflation rate, the impact on inflation can vary significantly depending on the magnitude and timing of the increases."

In particular, international oil prices and public utility charges may exert upward pressure on core inflation because they can cause secondary ripple effects on the prices of other goods and services through increased production costs.

Accordingly, if inflation expectations rise further, it could slow the pace of the inflationary trend's deceleration, according to the Bank of Korea's analysis. Petroleum products and electricity and city gas charges have high perceptibility, showing a strong correlation with short-term inflation expectations.

Furthermore, the Bank of Korea explained that since South Korea's labor market continues to show a robust trend and there is a close relationship between the labor market and core inflation, attention should also be paid to inflationary pressures from the labor market.

The Bank of Korea emphasized, "Given the significant uncertainties surrounding domestic and international economic conditions, and that future inflation trends may change depending on central bank policy responses, precise policy measures are required at this time."

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