Inflation rate rising to highest in 24 years Close to 4% next year
“Inflation rising, limiting economic recovery”… Next year’s growth rate 2.5% → 2.2%
The Organization for Economic Co-operation and Development (OECD) has raised its economic growth forecast for Korea this year.
This year’s inflation rate is expected to exceed the government’s forecast of 5%.
◇ The OECD predicts the highest inflation rate in 24 years this year… “Possibility of re-inflation in the fall”
According to the Ministry of Strategy and Finance on the 19th, in the ‘Korea Economic Report 2022’ released on the same day, the OECD raised the inflation forecast for Korea this year by 0.4 percentage points to 5.2% from the previous 4.8%.
This is the first time in three months since the previous forecast was released in June that the price level has risen again.
This is more than the government’s forecast (4.7%) as well as those of the International Monetary Fund (IMF) (4.0%), the Korea Development Institute (KDI) (4.2%), and the Asian Development Bank (ADB) (4.5% ) This is at the same level as the bank’s forecast (5.2%).
With such an observatory, this year, Korea will record the highest inflation rate in 24 years since 1998 (7.5%) during the financial crisis.
There is an increasing possibility that the actual inflation rate will reach the 5% per annum range.
The inflation rate recorded the first 5% increase this year in May (5.4%), and then exceeded 6% for two consecutive months in June (6.0%) and July (6.3%).
From this year to August this year, the inflation rate has risen to 5.0% compared to the previous year.
If the inflation rate for the remaining period does not continue to decrease from the previous month, it is almost impossible to achieve the government’s forecast.
The inflation forecast for next year has been raised from 3.8% to 3.9% on the assumption that international oil prices remain at the current level.
The OECD analyzed, “As the war in Ukraine overlapped with the disruption in the supply chain caused by the new coronavirus infection (COVID-19) and the surge in energy prices, energy prices rose and the rate of inflation was higher.”
Vincent Coen, acting deputy director of the OECD’s Bureau of Economic Review, said, “Although inflation slowed somewhat in August, there are still concerns that prices could rise again in mid-autumn.”
He said, “As the core price rises, the increase in prices is not limited to the initial shocks in energy and food prices, but it spreads to other items,” he said.
◇ Concerns about a global economic slowdown due to inflationary pressures… “A third quarter is expected.”
Korea’s economic growth forecast for this year has been raised by 0.1 percentage point to 2.8% from the previous 2.7%.
This is higher than the forecasts of the IMF (2.3%) and the ADB (2.6%), as well as the government (2.6%) and the Bank of Korea (2.6%).
In particular, as the private consumption growth rate rises to 3.7% from the previous forecast of 2.3%, the recovery in consumption is expected to lead economic growth.
On the other hand, the forecast for export growth was cut in half from 9.2% to 4.7%.
The OECD analyzed, “As the impact of increasing social distancing is added to the high rate of COVID-19 immunity, a stepping stone has been laid for the recovery of use in the face-to-face service sector.”
The OECD said, “However, the pace of the recovery is likely to be gradual, as inflationary pressures from rising raw material prices and supply chain disruptions are passed on to consumers.”
The economic growth forecast for next year was set at 2.2%, 0.3 percentage points lower than the previous forecast (2.5%).
The OECD predicted that “gross domestic product (GDP) growth will continue next year, but the growth rate will be moderate due to the impact of the global economic slowdown.”
However, the forecast itself was also higher than those of the IMF (2.1%) and the Bank of Korea (2.1%).
“After the previous forecast, we confirmed that Korea’s (growth rate) figures in the first half were better than expected,” acting official Coen said. “I have quite an optimistic view on the Korean economy,” he said.
Regarding future risk factors, he said, “The long war in Ukraine and geopolitical variables on the Korean Peninsula can act as risks.