The expected inflation rate nears 4%

The expected price hike rate by consumers for upcoming one year, or the expected inflation rate reaches 4 percent, which is the highest level in 10 years. With stronger forecasts that the high inflation will last for a long term, there is a growing possibility that Bank of Korea (BOK) will take its first “Big Step” (0.5 percentage points base interest rate hike) in the coming month.

As of Wednesday, according to the BOK, the expected inflation in June is 3.9 percent, 0.6 percentage points higher than a month ago. This is the highest figure in 10 years and two months since April 2012 (3.9 percent). The rising level over a month is the highest since statistics were collected since 2008.

With the expected inflation going up, concerns are rising that the economic players could lift the prices of products and services, pressures on pay raise will become bigger that the times with 6 percent high inflation may prolong.

The interest rate level outlook index renewed its peak with the growing forecast of the BOK’s additional interest rate hike. The Consumer Composite Sentiment Index (CCSI) (96.4) which exhibits the households’ economic conditions felt at hand fell below 100 in one year and four months as the consumer prices jumped and domestic and international economic conditions deteriorated.


Min-Woo Park minwoo@donga.com