South Korea’s central bank said Thursday that downside pressure on consumer prices will persist on the demand side, hinting that it may possibly lower its three-year inflation target range.
“On the demand side, downside pressure will persist, with the output gap remaining in negative territory on slowing growth. On the supply side, the impact of low oil prices will continue,” the Bank of Korea said in its semiannual report on consumer inflation.
The forecast comes as Asia’s fourth-largest economy is facing a double whammy of sagging exports and sluggish domestic consumption, which have sent on-quarter growth sharply lower to 0.3 percent in the second quarter.
The BOK still said consumer prices are likely to pick up in the second half, reaching 1.2 percent, compared with 0.5 percent in the first half.
In the fourth quarter, inflation is expected to shoot up to the 1 percent range as the impact of low oil prices start to fizzle out. For 2016, the BOK projected consumer price inflation to grow 1.8 percent annually, surging from this year’s 0.9 percent estimate.
The report comes as the central bank is readying to announce its new inflation target band.
The 2.5-3.5 percent target band for the 2013-2015 period, has been questioned for its validity as inflation has remained below the range for 32 consecutive months.
The BOK has acknowledged that the appropriate inflation level may have shifted amid changes in economic circumstances at home and abroad, including structural factors such as demographic changes stemming from rapid aging.
The central bank currently resets the band every three years after consulting with the government. (Yonhap)
