[Bank of Korea on the Test] 'Inflation' Mentioned 68 Times, 'Prices' 163 Times in Monetary Policy Committee Minutes

Lee Chang-yong, Governor of the Bank of Korea, is presiding over the Monetary Policy Committee plenary meeting held at the Bank of Korea in Jung-gu, Seoul on the 26th. Photo by Joint Press Corps

[Asia Economy Reporter Seo So-jeong] Just as the U.S. Federal Reserve (Fed) firmly established its “price stability first” stance by mentioning the word ‘inflation’ 90 times, the Bank of Korea (BOK) is also raising its vigilance by focusing on keywords related to ‘inflation.’ 'BOK on the Test Bench'

At the most recent Monetary Policy Committee (MPC) meeting, the word ‘inflation’ was directly mentioned 68 times, and keywords including the meaning of inflation such as ‘price’ and ‘price increase’ were expressed a total of 163 times. Although concerns about an economic recession due to rapid base rate hikes are growing, the stance that responding to inflation is a priority was clearly stated. The possibility of taking a ‘big step’ by raising the base rate by 0.50 percentage points on the 13th has increased.

On the 11th, Asia Economy analyzed the minutes of the MPC from August 26 last year, when the BOK began raising interest rates in earnest, to May 26 this year, and found that the words ‘inflation’ and ‘expected inflation’ noticeably increased. In the May MPC minutes, the words inflation and expected inflation appeared 54 and 14 times respectively. This contrasts with the August minutes last year, where the words appeared 8 and 1 times respectively.

Looking at the August minutes last year, when the BOK started preemptive rate hikes ahead of the U.S., except for MPC member Joo Sang-young, the other members generally cited financial imbalance issues such as household debt and real estate prices, as well as inflationary trends, advocating for a base rate hike (from 0.5% to 0.75%).

However, in May, when the base rate was unanimously raised to 1.75% per annum, all MPC members agreed on the need for further rate hikes. Since the domestic inflation trend is likely to continue in the medium to long term, there was consensus on the need for timely responses through rate hikes. One member warned of the spread of expected inflation, saying, “In a situation where pressures from rising raw material and food prices, supply delays, and cost pressures appear greater and longer-lasting than previously expected, we must be cautious of secondary ripple effects through corporate cost pass-through, rising expected inflation, and wage increase demands.”

In the January MPC minutes, the term ‘expected inflation’ appeared 31 times, the most frequent, with many MPC members emphasizing the need for its management. According to the BOK, the expected inflation rate (general public) for the next year’s price increase forecast reached 3.9% last month, the highest in 10 years.

Additionally, the MPC minutes showed a gradual increase in mentions of prices compared to last year, reflecting concerns about the inflation situation. In the August 26 MPC minutes last year, the words ‘price’ and ‘price increase’ appeared 113 and 13 times respectively. Subsequently, on November 25 (109 times, 15 times), January 14 (151 times, 25 times), April 14 (129 times, 22 times), and May 26 (139 times, 24 times), the number of occurrences of these words increased each time additional rate hikes were decided.

Kim Jeong-sik, Emeritus Professor of Economics at Yonsei University, said, “To stabilize prices, it is important to lower inflation expectations through active interest rate hikes.”