Global supply disruptions could inflate Korea's inflation: BOK

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Global supply disruptions could inflate Korea's inflation: BOK

Protracted global supply disruptions could send expected inflation higher and add larger-than-expected upward pressure on inflation in Korea, a central bank report said Tuesday.
The report by the Bank of Korea (BOK) also said that the global "carbon neutral" initiative could exert pressure on inflation by causing imbalances in the supply of and demand for materials needed to produce clean energy.
"The global supply bottlenecks have been impacting upward inflationary pressure in our country, but it is not as significant as seen in other major advanced countries," the report said.
"But protracted global supply bottlenecks are expected to send their ripple effects to a wider area and result in higher inflation pressure," the report added.
The report said that the impact from the global supply disruptions has recently become more conspicuous in some durable goods, including automobiles, and voiced worries that such persistent price growth could heighten expected inflation and result in exerting "larger- and longer-than-anticipated" upward inflationary pressure.
Korea is currently grappling with growing concerns over quickening inflation amid global supply bottlenecks and rebounding consumption from a pandemic-caused slowdown.
Its consumer prices rose 3.7 percent in November from a year earlier, the fastest on-year gain in a decade and accelerating from a 3.2 percent increase in October.
Last month, the BOK raised its key interest rate by a quarter percentage point to 1 percent to tame inflation and household debt, the second rate hike in three months.
The central bank report said that another potential risk is "greenflation" prompted by supply shortages of materials needed for clean energy and price hikes in electricity in the process of going carbon neutral.
"Renewable energy sources such as wind and solar power have higher supply volatility than fossil fuel energy, and the costs of building relevant facilities have also increased," the report said.
"In particular, if we fail to sufficiently meet the demand for electricity in the process of going carbon neutral, inflation could be under upward pressure repeatedly through supply chains in a way unseen before."
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