The Bank of Korea has raised its forecast for consumer price inflation this year to the mid-4% range.

However, it has lowered its expectations for this year's annual real gross domestic product (GDP) growth rate to 2.7%, less than 3%.

In the revised economic forecast released today (26th), the BOK presented the consumer price inflation rate of 4.5% this year.

This is 1.4 percentage points (p) higher than the previous forecast (3.1%) announced in February.

It is the first time in 10 years and 10 months since July 2011 (expected 4.0% per annum) that the BOK has released a 4% range as its forecast for consumer price inflation for the year.

Moreover, if the 4.5% projection is realized, it will be the highest annual inflation rate since 2008 (4.7%) in 14 years.

The BOK raised its inflation forecast so sharply because it reflected the consumer price inflation rate, which was already close to 5% (4.8% from the same month in April) and strong raw material and grain prices due to the Ukraine crisis and supply chain disruptions.

In addition, it is interpreted that the increase in demand for retaliatory consumption (delayed consumption) and the effect of the additional supplementary budget (additional budget) were taken into consideration due to the lifting of the COVID-19-related distance after March.

The BOK predicted that "the consumer price inflation rate will continue to rise in the 4% range for the time being due to the rise in raw material prices and the inflationary pressure on the demand side following the lifting of the distance" at the 'inflation status inspection meeting' on the 3rd.

In particular, the BOK's diagnosis is that the supply chain disruption has worsened due to the Ukraine crisis and the lockdown measures due to the re-spread of Corona 19 in China, and the global food price increase, centered on grain, is likely to be prolonged due to the aftermath of the war.

Future inflationary pressures are also large.

In this month's consumer trend survey, the 'expected inflation rate' (3.3%), which corresponds to the expected value of consumer price inflation for the next one year, reached the highest level in 9 years and 7 months since October 2012 (3.3%).

The economic growth forecast for this year has been lowered from 3.0% to 2.7%.

The deterioration of the trade balance due to the sharp rise in raw material prices, the slowdown of the Chinese economy due to the corona 19 lockdown, and the possibility of a blow to consumption due to inflation appear to have influenced the revision of the forecast.

Next year's consumer price inflation rate and growth rate are expected to be 2.9% and 2.4%, respectively.

(Photo = Yonhap News)