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S.Korea c.bank flags stronger inflationary pressure in H2

06/23/2021 | 10:01pm EDT
The logo of the Bank of Korea is seen on the top of its building in Seoul

SEOUL, June 24 (Reuters) - South Korea's central bank said on Thursday it sees upward inflationary pressure on both the demand and supply fronts amid the country's recovery from the pandemic, reinforcing views that the bank is shifting to a less accommodative monetary policy.

"Along with the rapid economic recovery, demand-side inflation pressure is growing and will fluctuate around 2% in the second half of the year," the Bank of Korea said in a report on bi-annual review of inflation.

With consumer inflation at a nine-year high, strong price pressure raises the possibility that the central bank may have to tighten policy sooner than expected.

The BOK in May raised this year's inflation outlook to 1.8% from 1.3% previously, as Governor Lee Ju-yeol said the central bank was preparing to pull back on the extraordinary stimulus extended during the pandemic.

The BOK in May kept its base rate at a historic low of 0.5%, as widely expected.

Thursday's report said better private consumption will push up consumer prices in the second half of the year, as people increasingly shop, travel and dine out.

Asked whether such price pressure would dissipate or last, Governor Lee Ju-yeol said inflation may persist should stronger consumption and commodity prices continue.

"I cannot help but flag that there would be concerns about possibility that inflation would stay strong, especially if demand-side pressure as well as supply-side pressure grow and affect the expectations of our economic entities," Lee said in a news conference.

Global oil prices are expected to stabilize in the coming months and help offset strong demand-side price pressure, the BOK said. But Governor Lee said volatility in oil price is something the bank monitors closely as "price increases in oil and raw materials could have meaningful impact on inflation in times to come."

The BOK next reviews its rate policy on July 15. (Reporting by Cynthia Kim; Editing by Kenneth Maxwell)

© Reuters 2021
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