The Bank of Korea is expected to raise rates by at least 25 basis points this month as consumer prices rose 6.3% in June
Inflation in South Korea accelerated further last month, underscoring the need for the central bank to continue raising interest rates in an attempt to curb mounting price pressures.
Consumer prices rose 6.3% from a year earlier, rising from 6% in June and matching estimates, government data showed yesterday.
Bank of Korea (BOK) Governor Rhee Chang-yong said a day earlier that the central bank would likely raise rates by 25 basis points this month, while refusing to rule out a bigger hike .
Policymakers expect price growth to remain high for a few months before starting to slow.
Risks to this outlook include an escalation of Russia’s war against Ukraine or an outbreak of other geopolitical hotspots.
Inflation has been broadly in line with projections and is expected to stay above 6% for some time to come, the central bank said in a statement after the release.
War, global commodity prices and summer weather conditions, such as typhoons or heat, add to uncertainties about the price outlook, he said.
The latest inflation report also showed that consumer prices rose 0.5% last month, compared to the previous month, with core inflation at 4.5% year on year. former.
The next BOK rate decision will be on August 25.
Policymakers rose half a percentage point last month, joining their global counterparts, including the US Federal Reserve, in opting for outsized increases.
Rising consumer prices have increased pressure on wages, causing disputes between workers and employers in some of the country’s key industries, such as automobiles and shipbuilding.
“The pressure on the BOK to raise rates, like the Fed, will be strong again if previous hikes fail to suppress wage growth and oil prices rise again,” said Lee Seung-suk, economist at the Korea Institute of Economic Research. “Inflation drove up wages and now wages will start to fuel inflation,” Lee said.
He estimates that inflation increases by 0.6% for every 1% increase in wages.
A year into its tightening cycle, the BOK is increasingly wary of risks to the economy, including the potential for a global recession as the Fed steps up rate hikes and war in Russia keeps energy prices high.
The COVID-19 shutdowns in China are also increasing pressure on international supply chains and weakening demand for South Korean products.
Comments will be moderated. Keep comments relevant to the article. Remarks containing abusive and obscene language, personal attacks of any kind or promotion will be removed and the user banned. The final decision will be at the discretion of The Taipei Times.