Inflation forecast for next year will be sharply raised from 1.5 to 2%
Inflation expected to be around 3% in November and December of this year
Trending inflation forecast?
Interest rates to rise by 1.75% per annum by the end of next year
The Bank of Korea has raised its consumer price forecast for next year to 2%. Inflation this year is expected to be 2.3%. Inflation is expected to exceed the BOK’s target (2%) this year as well as next year. Analysts say that the BOK will speed up the rate hike as it indirectly hinted at inflation concerns through the economic outlook.
The BOK raised the consumer price index to 2.3% this year from 2.1% in the ‘November Economic Outlook Report’ released on the 25th. Next year, the consumer price index will be raised from 1.5% to 2%. The economic growth forecast was not changed to 4.0% this year and 3.0% next year. In 2023, it is projected at 2.5%.
In this economic outlook, attention is paid to consumer prices. If this year’s consumer price forecast is realized, it will be the highest since 2011 (4.0%) on an annual basis. The BOK predicted that inflation in November and December of this year would record an average of 3% in the early to mid-range.
It is unusual for the consumer price index for next year to be set at 2%. It far exceeded the forecasts of other institutions such as the Korea Development Institute (KDI, 1.7%) and the Capital Market Research Institute (1.5%).
The consumer price forecast of the Bank of Korea, which has jurisdiction over monetary policy, affects consumer outlook, such as the expected inflation rate. To support the price stabilization target, we adopt a conservative price forecast. Even if the inflation rate is expected to be 2%, there is a high incentive to lower it to the level of 1.9% to reflect the impact on consumer sentiment.
However, the 2% forecast for next year reflects concerns that the rate of inflation will be rapid and prolonged. This year as well as next year, there is a risk of exceeding the BOK target (2%). This is interpreted as evidence that the BOK is noticing the possibility of inflation. The Monetary Policy Committee of the Bank of Korea also evaluated in its monetary direction statement on the same day, “In the future, the consumer price inflation rate will exceed the forecast path in August and significantly exceed 2%, and then gradually decrease, reaching the 2% level for the year next year.”
The Bank of Korea, whose establishment purpose is price stability, seems to have expressed its will to tighten monetary policy by revamping its consumer price forecast. Some analysts say that the base rate, which was raised from 0.75% per annum on the same day to 1.00% per annum, was indirectly hinted at an additional increase following January and February next year. Market officials expect the base rate to rise to 1.25% per annum at the end of the first quarter of next year and rise to over 1.75% by the end of next year.
Reporter Kim Ik-hwan lovepen@hankyung.commg
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