Consumer prices to increase 3.1 percent in 2022, IMF forecasts
It would be the fastest year-on-year increase in consumer prices in 11 years.
Inflation — driven by supply bottlenecks, the war in Ukraine and cheap money — is one of the biggest risk factors for the global economy.
Korea's consumer prices have been increasing more than 3 percent on year for the last five months.
The latest projection by the IMF is up from the 2.2 percent projected in October.
The Korean government set a 2.2 percent target for the rise in consumer prices this year.
"Inflation is projected to gradually return to target by next year," the IMF report noted.
While the IMF said that weaker growth is expected in the first quarter due to the Omicron variant, the impact will be temporary.
"With continued strong exports and investment, growth is projected to remain above potential this year and next, closing any remaining output gap," the report noted.
The IMF projected Korea's growth for this year at 3 percent, which is the same as its projection in January.
The growth is lower than the 3.3 percent forecast in October.
The key risks are those from "heightened global uncertainties and monetary normalization in advanced economies." Domestically, it raised concerns about Covid-19, household debt and real estate prices.
The report was based on data from January and does not reflect recent events, including the Russia-Ukraine conflict.
Another factor that could further affect Korea's inflation is President-elect Yoon Suk-yeol's push for another supplementary budget.
Yoon, who promised a 50-trillion won extra budget, held his first meeting with President Moon Jae-in on Monday.
According to Yoon's chief of staff, Yoon and Moon agreed on the need for another supplementary budget, which would be focused on compensating for the losses suffered by small businesses due to Covid-19 social-distancing regulations.
A 14-trillion-won extra budget was approved in January, and another could significantly boost liquidity in the market, further driving up the prices of goods and services.
The Korean Finance Ministry said it will closely monitor the market situation, including geopolitical risks from Ukraine and Russia, the spread of Omicron, monetary policies of major economies and inflation, and act accordingly.
BY LEE HO-JEONG [email@example.com]