S. Korea inflation to stay in 5-6% range amid high food, energy prices

Consumer inflation in South Korea will reportedly remain in the 5-6% range for some time due to high food and energy prices, as well as the local currency's severe depreciation versus the US dollar, according to the nation's central bank chief.

Bank of Korea's Governor, Rhee Chang-yong stated that the fourth-largest economy in Asia is projected to experience declining economic momentum into next year owing to China's downturn and the worsening external environment.

Rhee added that consumer prices are anticipated to continue growing by 5 to 6% for a considerable time.

Consumer prices in South Korea increased at a slower rate in August compared to July, when they reached a 24-year high after a drop in global oil prices. However, the nation continues to experience significant inflationary pressure, particularly as a result of rising food and energy prices.

Consumer prices, a key indicator of inflation, increased by 5.7% on a year-over-year basis in August, down from a 6.3% increase in July.

It is feared that the significant depreciation of the won will put more pressure on consumer inflation even further.

In intraday trade on Monday amidst global tightening, the Korean won dropped below the 1,420 won ($0.98) threshold versus the US dollar for the first time in over 13 years.

Rhee stated that if there is significant herd behavior in the foreign exchange market, the BOK will actively take efforts to stabilize it.

The governor also claimed that despite worsening external conditions, the nation was still anticipated to achieve a current account surplus in the current and the following year.

Due to a downturn in global demand, South Korean exports have begun to show signs of decline. For the very first time in around 25 years, the country is on track to have a trade surplus for the sixth consecutive month in September.

A trade surplus is expected to put downward pressure on the Korean won since it means there will be fewer dollars in the market.

Source credit: https://www.koreaherald.com/view.php?ud=20220926000291&np=1&mp=1