The Bank of Korea (BOK) projected that if the won-dollar exchange rate stays around the 1,470-won level through next year, the consumer price inflation rate could rise to 2.3%. In the "revised economic outlook" released in November, the BOK had forecast consumer price inflation for this year and next year at 2.1% each.
In its report "Assessment of inflation-targeting operations" released on the 17th, the Bank of Korea (BOK) noted, "If the exchange rate remains at a high level around 1,470 won next year as well, the pass-through effect of the exchange rate on prices could increase."
According to the Bank of Korea (BOK), the recent inflation rate is exceeding the outlook. Monthly consumer price inflation rose from 1.7% in August to 2.4% in both October and November. Core inflation also climbed from 1.3% in August to 2.2% in October before edging down to 2.0% in November.
The Bank of Korea (BOK) cited a surge in service prices driven by increased travel demand around the long Chuseok holiday, a rising exchange rate, and higher prices of agricultural, livestock and fishery products and petroleum as reasons for the wider inflation gains. Specifically, it estimated that the exchange rate increase added about 0.1 percentage point (p) to prices, and other factors such as worsening weather conditions added about 0.2%p.
The Bank of Korea (BOK) projected that if the current upward trend in the exchange rate continues, annual consumer prices next year could rise by an additional 0.2%p. Research Department Director Lee Ji-ho said at a press briefing held at the BOK headquarters in Seoul on the afternoon of the 17th, "The baseline outlook for next year's consumer prices is 2.1%," adding, "If the current level is maintained, an upward pressure of about 0.2%p could be added, allowing it to move around 2.3%."
In this regard, Governor Rhee Chang-yong of the Bank of Korea (BOK) said, "The BOK is acutely aware that, in a situation where difficulties have grown due to elevated price levels after the (COVID-19) pandemic, additional price increases centered on everyday living costs could further burden the public," adding, "We will monitor future price trends more closely with a sense of vigilance."
However, Governor Rhee said a rise in the inflation rate does not mean the rate-cut stance will change immediately. Rhee said, "Monetary policy is decided by assessing whether the inflationary trend is temporary or long term," adding, "Just as there was a variety of debate in the United States over price trends and stabilization when inflation was close to 3%, the (BOK) will decide by looking at the price level rather than just the numbers."