"The Disinflation Trend Will Continue in the Second Half of This Year"

There is a forecast that disinflation, where prices continue to decline, will persist in the second half of this year.

Choi Jae-min, a researcher at Hyundai Motor Securities, predicted in a report on the 3rd that the disinflation trend will continue in South Korea in the second half of this year. Disinflation refers to a phase where the inflation trend slows down, maintaining price increases but with a reduced rate of growth. Researcher Choi stated, "If geopolitical risks and supply-side factors do not worsen compared to the current situation, considering the low domestic demand-side pressure, the disinflation trend is expected to continue."

He forecasted that the base interest rate will begin to be cut in the fourth quarter of this year. Researcher Choi explained, "The Bank of Korea's Monetary Policy Committee is expected to lower the base interest rate once in the fourth quarter of this year, when the inflation level is anticipated to fall below 2.5%. Given the low demand-side pressure on inflation and the gradually expanding impact of prolonged high interest rates, it is necessary to consider the effects on domestic demand."

However, the Bank of Korea is expected to maintain a cautious stance, taking into account improvements in growth, supply-side inflation risks, and the retreat of expectations for interest rate cuts by the U.S. Federal Reserve (Fed).

Additionally, since the Fed is also expected to cut interest rates once within this year, the burden from the widening interest rate gap between Korea and the U.S. is judged to be limited.

There is a possibility that this year's growth forecast will be revised. Researcher Choi said, "Due to strong exports and expanded government transfer expenditures, a significant upward revision of this year's growth rate is inevitable." The Bank of Korea has presented a growth forecast of 2.1% for this year. Hyundai Motor Securities expects the Bank of Korea to adjust this to 2.5%.