[Newsmaker] Higher-than-expected inflation to continue for time being, says BOK chief

South Korea’s central bank chief said Thursday that the economy is likely to see faster-than-expected inflation for the time being, due to the global supply bottleneck and the spike in oil prices.

In an opening speech at an economic meeting with investment bankers and experts, Bank of Korea Gov. Lee Ju-yeol pointed to the nation’s spiking consumer prices, which gained 3.2 percent on-year -- the sharpest rise since January 2012, when the corresponding figure stood at 3.3 percent.

Lee said the jump in inflation resulted from unprecedented disruptions in the global supply chain. Global supply chains have failed to keep pace with the fast-recovering demand from major economies, driven by smooth vaccine supplies, the BOK chief explained.

Korea is struggling with a shortage of urea solution, also known as diesel exhaust fluid, and prices of the chemical have escalated in recent weeks. China -- which accounted for more than 97 percent of Korea’s urea imports in the first nine months of this year -- tightened exports of fertilizers and related materials, including urea, in October amid a power crisis caused by a coal supply shortage. Urea is extracted from coal.

While highlighting the obstacles, Lee said Korea’s economy was on the road to recovery, driven by robust exports and rebounding consumption. Korea adopted a “living with COVID-19” strategy at the beginning of this month, easing social distancing measures and treating the coronavirus more like seasonal influenza.

Asia’s fourth-largest economy’s full vaccination rate hit 77.4 percent, and 81.3 percent of the population had received at least one shot as of Thursday, according to the nation’s health authorities.

Lee expressed concern that in the changing global and local economic landscape, the BOK faces “unknowable uncertainties,” hinting that the central bank may have to revamp its operations to deal with new tasks at hand.

Korea also faces structural changes due to COVID-19, including shifts toward digitalization and a low-carbon economy, and the ongoing drastic transformation in the global value chain.

“In this sense, 2022 will work as an important turning point in shifting toward a new equilibrium,” Lee said.

The BOK in August forecast an annual inflation rate of 2.1 percent, but Lee recently said consumer prices are likely to exceed the August projections. The central bank forecast in May that Korea’s economy would grow 4 percent this year, while the government projected 4.2 percent growth.

Aside from the opening speech, Thursday’s meeting was held behind closed doors.

By Jung Min-kyung (mkjung@heraldcorp.com)