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Consumers' inflation outlook hits 10-year high

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Bank of Korea officials give a press briefing on household credit at the BOK headquarters in central Seoul, Tuesday. The bank also gave a separate briefing on consumers' expectations on inflation on the same day. Yonhap
Bank of Korea officials give a press briefing on household credit at the BOK headquarters in central Seoul, Tuesday. The bank also gave a separate briefing on consumers' expectations on inflation on the same day. Yonhap

BOK survey may prompt multiple rate hikes over next 12 months

By Yi Whan-woo

Consumers' expectation for inflation hit its highest level in nearly a decade at 3.3 percent in May, according to a Bank of Korea survey (BOK), Tuesday, fueling concerns of intensifying inflationary pressure amid soaring oil and raw materials prices.

Accordingly, it is presumed that the BOK may raise its key rate faster than expected to preemptively keep inflation under control.

In its latest survey, the BOK found that consumers' expected inflation will average around 3.3 percent over the next 12 months, up from 3.1 percent in April. The bank surveyed 2,500 households from May 10 to 17.

Concerning items, 70.8 percent of respondents said that petrochemical products will be affected most by inflation. Another 38.7 percent picked agricultural and livestock products, while the other 35.1 percent said utility costs would be most affected.

In a press briefing, a BOK official assessed that the expectations or perceptions regarding inflation are on the rise because consumers think prices are growing at a faster rate than it actually is and project the situation will get worse in the future.

"Such perceptions regarding prices are on an upward trajectory and it is likely to continue due to the current economic uncertainty," he said, referring to the protracted supply chain disruptions and rising commodity prices worldwide.

Analysts say the survey results might help to create additional inflation, which is growing at its fastest rate in over 13 years, recording 4. 8 percent in April.

"The inflation outlook can greatly influence prices, such as shoppers going on a buying spree, workers asking for higher wages, and manufacturers raising the prices of goods to ensure profit, in preparation for possible price spikes," said Park Chong-hoon, the head of economic research at Standard Chartered Bank Korea.

In another survey for the same month, the BOK said consumers' expectations for higher interest rates gained 5 points, now standing at 146 points.

A reading of above 100 means that there are more people anticipating interest rates will go higher than lower in the six months to come.

Park said that the projected rate hike is "likely to be realized," in case inflation expectation becomes more extreme and consumers "behave in an irrational and speculative manner."

"The fight against inflation is the BOK's foremost task and it will certainly come up with multiple rate hikes if it determines that inflation expectation is at an intolerable level."

Joo Won, deputy director of the Hyundai Research Institute, echoed a similar view, saying, "The rise in inflation expectation can be taken into account in the BOK's rate-setting decision possibly beginning in summer at the earliest."

He, however, mentioned that the BOK is already believed to have "made up its mind" over a possible hike in its next rate-setting meeting scheduled for Thursday and that inflation expectation in May will have little influence on its decision.

Market consensus is that the central bank is likely to raise the policy by a quarter of a percentage point to 1.75 percent.


Yi Whan-woo yistory@koreatimes.co.kr


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