Bank of Korea Raises Core Inflation Forecast to 2.5%

The Bank of Korea has raised its core inflation forecast for this year and next year to 2.5%. This adjustment is based on the judgment that the increase in nominal income is leading to a recovery in consumption, thereby increasing demand-side price pressures. The Bank of Korea has raised the base rate by 0.25 percentage points from 2.75% to 3.00%. The consumer price inflation forecast remains at 2.7% for this year and 2.3% for next year. Although the consumer price inflation rate slowed to 2.8% in July, core inflation rose to 2.6%. The Bank of Korea emphasized that improvements in income conditions are a key variable in price assessments and explained that the favorable semiconductor market is expected to have a positive impact on exports and consumption. The growth rate forecast has also been revised upward to 3.3% for this year and 2.9% for next year. The monetary policy committee warned that the convergence to the inflation target of 2% may be delayed and stated that the decision on further rate hikes will be made considering price and economic trends. This rate increase was supported by 6 out of 7 monetary policy committee members, and exchange rates and the stock market were also reflected in the monetary policy decisions.