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
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)