SEOUL– The Organization for Economic Cooperation and Development (OECD) on Monday raised its 2022 inflation outlook for South Korea to 5.2 percent amid high energy prices over the protracted war in Ukraine.
The organization also raised its growth forecast for the South Korean economy this year to 2.8 percent on the back of solid exports and “skillful management” of the COVID-19 pandemic.
According to the biennial report on the Korean economy, the OECD raised the inflation outlook by 0.4 percentage point from its June estimate of 4.8 percent. It would be the fastest on-year increase since 1998, when the country saw inflation jump 7.5 percent.
The latest projection is the same as the Bank of Korea’s (BOK) estimate made in August. The BOK aims to keep annual inflation at 2 percent over the medium term.
In August, consumer prices, a key gauge of inflation, jumped 5.7 percent from a year earlier over high energy and commodity prices. The government has forecast inflation could peak in around October.
The Paris-based organization also revised up its inflation outlook for the country next year by 0.1 percentage point to 3.9 percent.
The latest assessments came amid concerns over the global economic slowdown due mainly to high inflation and aggressive monetary tightening, as Russia’s invasion of Ukraine has been weighing on economic activity and has disrupted global supply chains.
“The preemptive moves (by the BOK) have helped keep inflation expectations anchored and nominal wage increases modest so far. However, year-ahead inflation expectations have increased lately and upward pressure on nominal wages is expected to mount as the labour market tightens,” the report read.
Since August 2021, the central bank has jacked up the key policy rate at a fast pace from 0.5 percent to 2.5 percent to tame surging inflation, including the latest 0.25 percentage-point hikes last month.
The OECD then recommended Seoul to “gradually consolidate the fiscal position” and to continue to move toward a less accommodative monetary policy stance with a view to keep inflation expectations in check.”
As for growth outlook, the organization raised its 2022 forecast for the South Korean economy to 2.8 percent from its earlier forecast of 2.7 percent, while cutting the forecast for next year to 2.2 percent from 2.5 percent.
The BOK said the economy is forecast to grow 2.6 percent this year and 2.1 percent next year.
“Sound health management and supportive policies helped Korea emerge swiftly from the pandemic, with economic growth boosted by strong semiconductor exports. The recovery is set to continue,” according to the report.
Source: Yonhap News Agency