Expected inflation lowered to 3%

Inflation expectations, consumers' expectations of inflation for the next year, fell to the 3% level in six months. As raw material prices, such as international oil prices, fell and the won-dollar exchange rate stabilized around 1,300 won, expectations for a slowing upward price trend grew.

According to the results of a consumer trend survey announced by the Bank of Korea on Tuesday, inflation expectations for December were posted at 3.8%, down 0.4% MoM (4.2%). Inflation expectations hit a record high of 4.7% in July this year and have remained in the 4% range for five consecutive months. It is the first time since June (3.9%) that inflation expectations fell to the 3% range.

“The prices of agricultural and livestock products and petroleum products related to living costs have stabilized, and the consumer price index (CPI) and exchange rate have dropped, which has affected slumping inflation expectations,” said Hwang Hee-jin, head of the BOK’s statistical research team. However, it is unclear whether such downward pressure on prices will continue as electricity and gas rates are expected to rise next year, and increased public utility rates such as subway fares are unavoidable. Most of all, with international oil prices and exchange rate trends still uncertain, the prevailing view is that the high inflation trend of around 5% will continue until the first half of next year.


Min-Woo Park minwoo@donga.com