ING Bank’s inflation rate could reach 5% within a few months… BOK expects base rate to rise this month

Home » Business » ING Bank’s inflation rate could reach 5% within a few months… BOK expects base rate to rise this month

May 9, 2022
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Citizens shopping at a large mart in Seoul on the 8th. [사진=연합뉴스]

Last month, the consumer price inflation rate in Korea recorded the highest level (4.8%) since the 2008 financial crisis, and it is predicted that it will soon enter the 5% range. There was also an observation that the Bank of Korea would raise interest rates further at the Monetary Policy Committee scheduled for the 26th due to the steeper-than-expected rise in inflation.

On the 9th, ING, a global investment bank, said, “The recent base price increase is still high and the won’s weakness is expected to be prolonged. There is a possibility that the monthly consumer price inflation rate will rise by 5% in the next few months.”

According to ING Bank, the consumer price index (CPI) rose 4.8% in the month of last year, far exceeding the market consensus of 4.4%, and the seasonally adjusted monthly increase rate also accelerated for five consecutive months. In addition, oil (+34.4%) and processed food (+7.2%) rose the most due to the surge in energy and food prices, and the core price increase rate also recorded 3.6%, the highest since December 2011.

Kang Min-joo, chief economist at ING Bank’s Seoul branch, said, “The Korean government has been suppressing additional increases in public utility rates as much as possible, but as energy prices around the world have soared due to the Ukraine crisis, price adjustment has become inevitable.” In order to minimize the cost, public charges will have to rise again one after another,” he predicted. The increase in utility rates will continue in 2023, and the rate of consumer price increase next year will also exceed the Bank of Korea’s 2% target.

He also pointed out the marked rise in service prices. Food prices rose 6.6% in April compared to the same month of the previous year, and the remaining personal service prices are also showing a continuous upward trend. Labor-intensive service prices (housekeeping services, nursing care, apartment management, etc.) rose as various service activities resumed at the end of March due to the easing of social distancing. Normalization is expected.

In addition, ING Bank predicted that the BOK would put more effort into curbing inflation for the time being. Based on the higher-than-expected CPI and higher-than-expected 1Q GDP growth, the view is that the BOK’s further rate hike will be sooner than the market’s expectations (currently an additional increase in July).

Economist Kang said, “Considering the Fed’s aggressive rate hike action and the absence of a BOK meeting in June, the possibility of a 25bp rate hike at the MPC meeting in May has increased,” said Kang. It is expected that the rate of interest rate hike will be slowed down until the end of the year after this, due to rising concerns about price stability and growth.”