S Korea inflation to stay high for longer on demand pressure - central bank
An office worker eats his lunch at a convenience store in Seoul, South Korea, June 24, 2022. Picture taken June 24, 2022. REUTERS/ Heo Ran
SEOUL : South Korea's central bank said demand-side price pressure across the economy will possibly keep inflation high for a longer-than-expected period.
In a research paper released on Wednesday, the Bank of Korea said the positive correlation between the output gap and core inflation has grown stronger since the pandemic, which is expected to keep consumer prices on an upward trajectory for a longer time frame than in the past.
"There is a possibility of core inflation continuing its upward trend for a considerable period of time as the gap between real and potential gross domestic product (GDP) will swing to the positive territory this year and remain there through next year, unlike in major countries like the United States and euro zone," the BOK said.
South Korea's annual consumer inflation softened in August for the first time in seven months to 5.7 per cent, after hitting a near 24-year high of 6.3 per cent, but core inflation accelerated further to 4.0 per cent, the fastest in 13-1/2 years.
The BOK has a mid-term inflation target of 2 per cent.
On the supply side, the central bank said uncertainty remains high given possibility of a rebound in oil and food prices after Russia halted gas supplies to Europe as well as due to unfavourable weather conditions.
"There is a need for continued policy response to stabilise inflation expectations, as inflation is expected to stay high at 5-6 per cent level for the time being, with consumers' expectations also remaining high at 4 per cent level," the BOK said.
