BOK expects stronger inflation pressure in H2

South Korea’s consumer prices are expected to face stronger upside pressure in the latter half of this year, although the rise will be limited by the pace of economic recovery over the long term, the Bank of Korea said Thursday.

Consumer price growth in Asia’s fourth-largest economy remained in the 1 percent range for the eighth straight month in June, hitting a 1.7 percent rise last month from a year earlier, amid weak demand and few signs of rising raw material prices.

The six-month inflation stood at 1.4 percent on-year, slightly up from a 1.2 percent rise last year.

Consumer demand was hit hard by the deadly ferry Sewol sinking on April 16 that left more than 300 dead, dampening spending as the nation mourned the tragedy.

The BOK said in its semiannual report on inflation that consumer inflation is likely to expand in the second half of the year on the back of domestic demand buoyed by the steady economic recovery and rising crop prices in global markets.

It said South Korea’s gross domestic product will grow more than 3 percent throughout the year and the rate will rise to 4 percent next year. The GDP expanded 3.7 percent on-year in the first half, compared with 3 percent growth for 2013.

Rate hikes in public utilities will also serve as an upside risk to consumer prices, added the BOK.

International prices of grain and meat will be on a upside trend due to rising demand and bad weather, while commodities like crude oil will remain steady, the report said.

The BOK said the upward inflation tendency will be extended in the second half of the year, as the upside risks are relatively bigger than the downside risks.

Its 2014 inflation estimate is 1.9 percent, with 2.3 percent for the second half.

The central bank said it will manage monetary policies to put consumer prices within the 2.5-3.5 percent inflation target band and to supplement the recovery pace of the domestic economy.

The BOK froze the key interest rate at 2.5 percent for the 14th straight month in June but gave hints of a rate cut in the near future as growth has contracted slightly and domestic demand has weakened due largely to the maritime disaster. (Yonhap)