BOK sees both upside, downside risks in inflation

South Korea’s consumer prices face both upside and downside risks this year ― sliding oil prices and volatile agricultural prices ― the country’s central bank said Friday.

Additional falls in oil prices and a prolonged slump in domestic demand are expected to drag down the inflation rate in Asia’s fourth-largest economy this year, while uncertainties over agricultural prices pose upside risks, according to a semiannual report by the Bank of Korea.

The report comes after the central bank slashed its inflation forecast for this year on Jan. 15, citing weakening oil prices.

Inflation is expected to reach 1.9 percent this year, down from an earlier forecast of 2.4 percent, according to the BOK.

The report showed that weakening oil prices and agricultural prices added to downside pressure on inflation last year.

In 2014, oil prices are estimated to have lowered consumer price growth by 0.1 percentage point in the first half and 0.3 percentage point in the second half.

Agricultural prices also weighed on inflation, with such prices lowering inflation by 0.5 percentage point in the first half and 0.4 percentage point in the second half, the report showed.

The central bank reiterated its plan to unveil the new inflation target band for next year, amid mounting criticism over the current system.

The 2.5-3.5 percent target band for the 2013-2015 period has been questioned for its validity as inflation has mostly remained in the 1 percent range.

The BOK acknowledged that the appropriate inflation level may have shifted amid changes in economic circumstances at both home and abroad.

The central bank currently resets the band every three years after consulting with the government. (Yonhap)