BOK minutes suggest Korea's inflation is understated

The members of the central bank's rate-setting board have voiced concerns inflation could be higher if housing costs are taken into consideration, minutes from the latest policy meeting showed Wednesday.

The Bank of Korea issued the minutes of the Oct. 12 meeting when its seven-member board held its key policy rate unchanged at 0.75 percent.

"In August, consumer prices in the U.S. grew 5.3 percent, much higher than a 2.6 percent rise in our country, which suggested inflation in the U.S. is more serious than in our country," an unidentified board member said, according to the minutes.

"But given the differences in composition of items for the price indexes of the two countries, inflationary pressures in South Korea look no smaller than those in the U.S."

"If we include owner-occupied housing services costs like the U.S. does and exclude our unique administered price items, our inflationary pressure would be higher than now," the member added.

Owner-occupied housing services costs refer to the costs related to owning, maintaining and living in one's own home. The costs are not reflected in measuring Korea's consumer prices, though they are included in the consumer price indexes in the U.S. and other major economies.

Other members underlined the need to closely monitor the impact of such housing costs on inflation and even called for inclusion of the costs in calculating the consumer price index.

Korea's consumer prices rose 3.2 percent in October from a year earlier, the fastest clip in almost a decade. BOK Gov. Lee Ju-yeol earlier said the 2021 inflation rate is likely to exceed the central bank's forecast of 2.1 percent.

The BOK held its key interest rate unchanged last month but hinted at a further rate hike late this month amid concerns over growing inflationary pressures and rising household debt.

Yonhap