Inflation to cool below 3 percent before bouncing back: BOK

Bank of Korea Gov. Rhee Chang-yong speaks at a press conference held to discuss inflation in central Seoul on Monday. [BANK OF KOREA]

The Bank of Korea on Monday projected inflation to fall below 3 percent in June and July, but expects it to jump back up in the following months for the annual inflation to hover around 3 percent.

But core inflation, which excludes food and energy prices, is forecast to cool down slowly, the central bank added.

“Core inflation will stay sticky for two to three [more] months before it starts to slow,” said Bank of Korea Gov. Rhee Chang-yong at a press event held in central Seoul on Monday. It remained high at 3.9 percent in May due to a robust service sector. The figure was down from 4.0 percent a month earlier.

Inflation was at a 19-month low in May at 3.3 percent after peaking at 6.3 percent in July last year. The central bank cited the rapid rise in global oil prices last year as the reason for the slowdown in inflation.

“The global oil price is expected to fall more than 20 percent in June from a year earlier,” said Choi Chang-ho, director general of the Research Department at the Bank of Korea during the press event.

But uncertainties, including a rise in energy prices including gas and electricity, remain, Choi added.

The Bank of Korea in May maintained its inflation forecast for this year at 3.5 percent from the previous outlook three months earlier. Rhee reiterated that it is too early to discuss a policy rate cut, despite cooling inflation.

The Monetary Policy Board “may consider cutting the rate if there is proof that inflation is nearing the 2 percent range, but it is still too early to tell at this point,” he said.

The Bank of Korea has kept the policy rate unchanged at 3.50 percent during its last three meetings. It cited the need to take a wait-and-see approach following a rapid jump in the policy rate over the past one and a half years.

The Bank of Korea reports on inflation status and its future trend biannually in June and December.

The central bank report on inflation echoed the remarks made by Finance Minister Choo Kyung-ho over the weekend.

“Economic difficulties are nearing their end,” the finance minister said on Sunday with the ministry believing “inflation will reach the 2 percent range in June and July.”

But Choo added the ministry will push support measures to stabilize the prices felt by consumers, citing the jump in prices for certain food items including ramyeon as an example.

BY JIN MIN-JI [jin.minji@joongang.co.kr]