Lee Hyo-jin covers the Bank of Korea, the banking industry and broader financial news. Her previous beats include foreign affairs, North Korea and general reporting on Korean society.
Inflation to remain above 3% in 2nd half despite US-Iran deal: BOK
Bank of Korea Gov. Shin Hyun-song speaks during a press conference at the central bank's headquarters in Seoul, Wednesday. Yonhap
By Lee Hyo-jin
Top monetary policymaker vows 'proactive action' to tame consumer prices
Korea's consumer inflation is expected to remain around 3 percent in the second half of the year as the impact of elevated oil prices stemming from the Middle East conflict continues to filter through the economy, the Bank of Korea (BOK) said Wednesday.
Although a ceasefire agreement between the United States and Iran has raised hopes for an end to the monthslong war, the BOK said price pressures fueled by higher energy costs are likely to spread beyond petroleum products to other goods and services in the coming months.
"Although geopolitical tensions have eased somewhat following the ceasefire agreement between the U.S. and Iran, upside risks to inflation remain," BOK Gov. Shin Hyun-song said during a press briefing.
"It could take considerable time for energy supply chains to normalize and for oil prices to stabilize. Higher energy costs could also gradually spill over into other goods and services," he said.
Despite recent declines in oil prices as expectations rise that shipping through the Strait of Hormuz will normalize, Shin said the central bank would look beyond short-term market movements and focus on the war's broader economic impact.
"We will make proactive efforts while closely monitoring consumer price trends until we gain confidence that inflation is stabilizing toward the target level," the governor said.
Earlier in the day, the central bank released a report projecting consumer inflation to remain around 3 percent in the second half of this year. Core inflation, which excludes volatile food and energy prices, is expected to remain in the mid-to-upper 2 percent range.
Consumer inflation rose 2.4 percent in the first half of the year, exceeding the BOK's 2 percent target, largely due to a surge in global oil prices after the U.S. and Israel launched strikes against Iran in late February. In May, consumer prices soared 3.1 percent compared to a year ago.
The central bank also projected that both headline and core inflation will remain above the 2 percent target in 2027 as demand-side pressures gradually strengthen.
Beyond geopolitical factors, the BOK also highlighted domestic inflation risks, including rising wages and a recovery in consumer spending. It pointed out that large performance bonuses recently awarded by some major companies could spill over into broader wage growth, creating additional inflationary pressure.
"If the large bonuses currently seen in parts of the technology sector lead to broader wage increases across other industries, both supply and demand side inflationary pressures could rise significantly," the report said.
The assessment comes as employees at Korea's two chip giants — Samsung Electronics and SK hynix — are set to receive sizable bonuses as a result of the companies' record earnings, driven by strong global demand for artificial intelligence-related semiconductors.
The BOK's latest warning on inflation has reinforced market expectations that it will shift toward monetary tightening to contain price pressures.
The central bank left its benchmark interest rate unchanged at 2.5 percent in May, extending its pause for an eighth consecutive meeting, but signaled the start of a rate hike cycle.
Shin reinforced that message at the bank's May 28 rate-setting meeting, saying the policy path remained "relatively clear" given inflation, economic growth, exchange rate movements and housing prices.
The BOK is scheduled to hold its next Monetary Policy Board meeting on July 16.