"Consumer Price Inflation Rate Expected to Record 1.7% from 2021 to 2025"

[Asia Economy Reporter Jang Sehee] An analysis has emerged that the average annual consumer price inflation rate during the period 2021?2025 will record 1.7%. This is 0.6 percentage points higher than the past five years (1.1%).

The National Assembly Budget Office (NABO) stated on the 4th in its '2022 and Medium-Term Economic Outlook' report that "the average annual consumer price inflation rate during 2021?2025 is expected to be 1.7%, higher than the past five years." It further analyzed, "Externally, global inflationary pressures are increasing due to instability in global supply chains and rising export prices from China, which may raise import prices."

In the short term, it predicted that after the spread of COVID-19, global supply chains have been damaged, causing supply-side bottlenecks, and logistics costs such as transportation fees have increased, leading to rising global inflationary pressures.

In the medium term, it added that risks to global supply chains have been highlighted due to COVID-19 and the US-China trade dispute, and movements to establish domestic supply chains among major countries are spreading, making it highly likely that global inflationary pressures will increase.

Regarding consumer prices next year, NABO stated, "With improvements in private consumption, the rise in service prices will expand, but due to the stabilization of international oil prices, the increase will be 1.6% year-on-year, lower than the previous year."

In 2022, as private consumption expands, demand-side price pressures will increase, and core inflation is expected to rise mainly in personal services. In fact, during 2022, the effect of reduced high school tuition fees due to the implementation of free high school education will disappear, and the support effect from strengthened health insurance coverage policies will gradually diminish.

Rising expected inflation and an increase in nominal wage growth are also expected to act as factors driving consumer price inflation.

NABO added, "Expected inflation, which affects actual inflation through price setting and wage negotiations by economic agents, fell by 1.6% in 2020 but rose to 2.4% in August 2021."