Lee Chang-yong: “Inflation may be higher in June and July”
If the U.S. rate hike fails to keep pace
A sharp rise in the exchange rate stimulates inflation
As the won-dollar exchange rate broke through the 1,300 won range for the first time in 13 years, and inflation soared, it is predicted that the Bank of Korea’s big step (a 0.5 percentage point increase in the base rate at a time) is likely to increase. Failure to keep pace with the pace of US interest rate hikes could lead to a steep rise in the exchange rate, which could lead to a vicious cycle that stimulates inflation.
According to the Bank of Korea on the 23rd, the producer price index for last month was 119.24 (2015 level of 100), 0.5% higher than in April (118.59). The producer price index has been on an upward trend for the fifth consecutive month this year. The producer price index is an index that measures the overall price level of various goods and services shipped to the market by domestic producers. It can be used as an index to predict how the wholesale and retail prices will be affected in the future.
By item, agricultural products (-1.7%) and aquatic products (-0.3%) fell, but livestock products jumped 6.9%. Industrial products rose 0.8% on average as coal and petroleum products (5.9%) and chemical products (0.7%) rose. Service industry prices accounted for 0.4%, and prices related to restaurants and lodging (0.9%) and transportation (1.0%) led the rise. The domestic supply price index, which measures price fluctuations including imported goods, also rose 0.9% from the previous month.
As a result, consumer prices are expected to rise further in the future. Consumer price inflation rose 5.4 percent last month, the highest in 14 years. Lee Chang-yong, governor of the BOK, said on the 21st, one month after the BOK raised the consumer price inflation rate this year from 3.1% to 4.5%, “It cannot be ruled out that the consumer price inflation rate will exceed the level of the financial crisis (4.7%).” . Governor Lee also noted that “inflation in June and July may be higher than in the previous month.”
The market is predicting that the BOK will take a big step at the Monetary Policy Committee meeting on the 13th of next month.
Following JP Morgan, a global investment bank (IB), Citi also recently predicted that the BOK would raise the key interest rate by 0.5 percentage points in July. Citi said, “If you look at the flow of oil prices in Korea until the third week of June, the inflation rate in June will rise to about 6%. will do,” he said.
By Jo Mi-hyeon, staff reporter mwise@hankyung.com
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