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’High inflation could hinder Korea’s sustainable economic growth': BOK chief

Central bank chief expresses concerns as consumer inflation is projected to hover in the 2 percent range next year

BOK Gov. Lee Ju-yeol speaks at a press briefing held at the central bank headquarters in Seoul on Thursday. (Bank of Korea)
BOK Gov. Lee Ju-yeol speaks at a press briefing held at the central bank headquarters in Seoul on Thursday. (Bank of Korea)
South Korea’s central bank chief expressed concerns of high inflation Thursday, saying it could pose as a major hurdle for the economy’s sustainable growth.

“If the sentiment surrounding inflation expectations continues to sour, the ties between wages and inflation could drive up inflationary pressure, as observed in other economies,” Bank of Korea Gov. Lee Ju-yeol said in a press briefing.

“The longstanding high inflation could hinder households’ purchasing power, but could also work as a major hurdle for the economy’s sustainable growth,” he added.

Lee’s remarks were tied to the BOK’s biannual inflation report released earlier, which said that Korea’s consumer inflation is projected to hover in the 2 percent range next year. The reading is set to surpass the central bank’s 2021 annual goal of 2 percent for the first time in nearly a decade, the report added.

“The ongoing economic recovery coupled with a heightened demand-side inflationary pressure is projected to drive up consumer inflation, over our target goal for a considerable period,” the report read.

“Consumer prices will continue to grow at a 2 percent range next year, though the momentum will slightly slow down due to lesser impact from supply factors such as farming, livestock and oil prices.”

Lee also pointed out the changes that the global value chain is undergoing and the way corporations are shifting toward “resilience” rather than “efficiency” in managing their supply and distribution as adding fuel to the inflationary pressure.

The core inflation rate -- omitting changes in food and energy prices, which had hovered in the 1 percent range this year -- is expected to enter the 2 percent  rangenext year, the BOK noted. The core inflation rate rose 1.9 percent on-year last month. It had remained at 0.4 percent in the January-March period this year until it spiked to 1.2 percent in April.

In the trajectory for inflation, upward pressure seems to outweigh downward pressure, with surging oil and raw material prices and the global supply bottleneck amid recovering consumption fueling inflationary pressure.

The BOK, on the other hand, pointed to a possible oil price drop due to continuing spread of COVID-19 as a downward factor.

Consumer prices are projected to surpass the central bank’s 2021 annual goal of 2 percent for the first time in nearly a decade, jumping 2.3 percent on-year in the January-November period, according to the BOK.

This is expected to be the first time the consumer price index will surpass the annual inflation goal set by the BOK since the reading came to 2.2 percent in 2012.

The reading came to 3.7 percent in November alone, the highest on-year gain since December 2011, when the corresponding figure came at 4.2 percent.

Meanwhile, in a separate report the BOK raised the possibility of a quickened pace of monetary policy normalization in the US and other major economies.

Lee addressed the concerns of risks the US Federal Reserve’s expected rate hike could impose on Korea’s economy, saying the BOK isn’t “being dragged” by the pace of the US Fed’s shift toward policy normalization.

The BOK carried out its second pandemic-era rate hike by 25 basis points to 1 percent in November. It previously raised its base rate by 25 basis points to 0.75 percent in August, ending 16 months of a record-low interest rate of 0.5 percent.



By Jung Min-kyung (mkjung@heraldcorp.com)
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