The Bank of Korea: "Inflation to Drop to 2% Range by Mid-Year... Around 3% by Year-End"

Briefing Session on the Operation Status of the Inflation Stabilization Target

The Bank of Korea forecasted that the consumer price inflation rate will continue a clear deceleration trend until mid-year and then fall to the 2% range. However, after mid-year, the consumer price inflation rate is expected to rise again with fluctuations and reach around 3% by the end of the year.

On the 19th, the Bank of Korea released this inflation outlook in its "Price Stability Target Operation Status Review Report." The Bank stated, "International oil prices are expected to face moderate upward pressure in the second half due to increased crude oil demand from the recovery of the Chinese economy and seasonal demand. However, there are significant uncertainties as downside risks remain from continued economic sluggishness in major countries and concerns over intensified monetary tightening."

Regarding international food prices, although grain prices have significantly dropped compared to last year's peak (Q2), risks remain from unstable sugar and meat prices, abnormal weather caused by El Ni?o, and the potential suspension of the Russia-Ukraine grain export agreement.

The upward trend in consumer prices has shown a clear deceleration in the first half of this year. The inflation rate for the first half of this year (January to May) was 4.2% (year-on-year), significantly lower than 5.6% in the second half of last year. Since the beginning of this year, inflation has rapidly slowed from 5.2% in January to 3.3% in May, but it still considerably exceeds the price stability target of 2%.

Core inflation rose by 4% in the first half of this year, only slightly lower than 4.1% in the second half of last year. Monthly trends in the first half show a slow deceleration from 4.1% in January to 3.9% in May, and since April, core inflation has exceeded the consumer price inflation rate.

The Bank of Korea expects inflation to temporarily fall to the 2% range around mid-year and then rise again afterward. On the demand side, service consumption is expected to continue a moderate recovery in the second half, while wage growth is anticipated to gradually slow. On the government side, increases in public transportation fares and the end of the individual consumption tax reduction for passenger cars in the second half are expected to exert upward pressure on prices.

Choi Chang-ho, Director of the Bank of Korea’s Research Department, said, "There is high uncertainty regarding future international oil price trends, domestic and foreign economic conditions, and the extent of public utility fee increases. Regarding core inflation, the upside risk in the forecast is somewhat significant. If favorable consumption and employment trends continue, the cumulative cost-push pressures could cause the core inflation impact to persist longer than expected."

Earlier, in last month's revised economic outlook, the Bank of Korea projected this year's consumer price inflation rate at 3.5%. The expected core inflation rate for this year was raised from 3.0% to 3.3%.

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