The Bank of Korea Forecasts Inflation Rate to Remain High at 5-6% for an Extended Period

Expected Inflation Sustains High Level at 4% Range
Uncertainty Grows Due to Major Oil Producers' Output Cuts

A vegetable sales stand at a large supermarket in Seoul [Image source=Yonhap News]

The Bank of Korea reported that the consumer price inflation rate slightly decreased compared to the previous month last month, but it is expected to remain at a high level for a considerable period. There is also analysis suggesting that inflationary pressures could increase further due to significant uncertainties such as production cuts by major oil-producing countries and a high won-dollar exchange rate.

On the morning of the 5th, the Bank of Korea held a 'Price Situation Review Meeting' at its main building conference room in Seoul, chaired by Deputy Governor Lee Hwan-seok, to review the recent price situation and future price trends.

At the meeting, Deputy Governor Lee explained, "The consumer price inflation rate in September slightly decreased compared to the previous month as the increase in petroleum prices narrowed, but core inflation continues to expand, mainly driven by personal services such as dining out."

According to the 'September Consumer Price Trends' announced by Statistics Korea on the same day, the consumer price index last month was 108.93 (2020=100), up 5.6% compared to the same month a year ago. The inflation rate has decreased for two consecutive months following 6.3% in July and 5.7% in August.

However, core inflation, which excludes food and energy, showed an unstable trend mainly due to personal services such as dining out, recording increases of 3.9% in July, 4.0% in August, and 4.1% in September.

The expected inflation rate for the next year, which forecasts consumer price inflation, was 4.2% last month, lower than 4.7% in July and 4.3% in August, but still maintained a high level in the 4% range.

The Bank of Korea expects consumer prices to continue rising at a high rate of 5-6% for a considerable period going forward.

In particular, personal service prices, which reflect demand-side inflationary pressures, are expected to maintain a high increase rate in the 6% range for a considerable period.

Deputy Governor Lee explained, "Amid significant uncertainties such as the developments in the Russia-Ukraine war and the strengthening of the global tightening stance, upward risks are latent, including a high exchange rate level and expanded production cuts by major oil-producing countries."