“Inflation is expected to top 5% by a wide margin for some time…Upside pressures will increase further in the second half of this year due to the persistence of supply-side factors abroad,” the Bank of Korea (BOK) said in its biannual review of inflation-targeting monetary policy.
The BOK, which sharply raised its 2022 forecast for average annual inflation to 4.5% less than a month ago, said it was not ruling out the possibility of inflation rising above 4.7% achieved in 2008.
Upward pressure on oil prices has increased due to the European Union’s embargo on crude oil and Russian oil and the easing of lockdown measures in China, the bank said.
On the demand side, the BOK noted that the lifting of social distancing rules in the country and an additional budget are likely to add inflationary pressures.
Inflation in South Korea accelerated in May for a fourth consecutive month to 5.4%, the fastest annual rise since August 2008, and exceeded the central bank’s 2% target for a 14th consecutive month.
Asia’s fourth-largest economy has removed all COVID-19 restrictions, except the requirement to wear masks indoors, since late April.
Last month, the country introduced an additional budget of 62 trillion won ($48 billion) to support small businesses and freelancers affected by social distancing restrictions during the pandemic.
($1 = 1,291.3300 won)