South Korean consumers' inflation expectations hit 8-year high

[SEOUL] Inflation expectations among South Korean consumers reached the highest level since 2014 as the war in Ukraine exacerbates supply chain snags and rising energy costs.

Price expectations this month accelerated to 2.9 per cent, up 0.2 percentage point from the previous month, the Bank of Korea (BOK) said Tuesday (Mar 29). Meanwhile, consumer confidence rose 0.1 point to 103.2 on an index measuring sentiment, inching further above the 100 threshold that divides positive from negative.

The outlook adds pressure on the Bank of Korea to rein in inflation, which hit a faster-than-expected 3.7 per cent last month, and break a potential cycle of wage and price increases. It held its benchmark rate last month at 1.25 per cent, and next meets on Apr 14.

The central bank is also facing the inflation challenge in the middle of a leadership change. Chang-yong Rhee, nominated last week to take over when Governor Lee Ju-yeol's term finishes at the end of this month, has yet to undergo parliamentary hearings that may take weeks.

South Korea is among the developed countries hardest hit by the ripple effects of Russia's invasion of Ukraine. The country's manufacturing sector, a key exports earner, relies heavily on imported energy, which is becoming pricier as the war worsens worries over the supply of commodities.

The BOK, which has raised rates 3 times since August, said earlier this month that it sees inflation staying above its 2 per cent target for a considerable time this year. BLOOMBERG