IMF predicts 4.5% prices growth, BOK expects stability in oil prices


The Bank of Korea on Wednesday revised its projection for this year’s consumer inflation to a three-year high of 3.9 percent while maintaining its growth outlook at 4.5 percent.

Oil and vegetable prices, the main drivers of inflation, are expected to ease during the third quarter, but the underlying upward trend will continue into next year, the central bank said.

Last December, the BOK projected prices would rise 3.5 percent.

“The inflation outlook was revised up mainly due to supply-side pressures, like high oil prices and the outbreak of foot-and-mouth disease,” the BOK said.

On Monday, the International Monetary Fund forecast 4.5 percent growth in Korea’s consumer prices, up from an earlier forecast of 3.4 percent. 

While the IMF predicted that global oil prices would continue to rise in the coming months, the BOK disagreed. Central bank officials said the bank expected that political turmoil in the Middle East and North African countries would not worsen and that oil prices would stabilize.

Korea has faced growing inflationary pressure, sparked by sustained economic growth and rising oil and food prices. The government, which previously put growth before price stability, seeking to curb inflation by unveiling a set of anti-inflationary steps and clamping down on price rigging.

Meanwhile, the BOK maintained its growth projection for this year at 4.5 percent, a forecast made in December. The nation’s economy grew 6.2 percent in 2010 after advancing 0.3 percent in 2009.

BOK officials said the recovery in the U.S. economy and an expansion in global trade are expected to offset negative impacts of high oil prices, leading the bank to keep its earlier growth forecast.

Its growth projection is based on a 4.2 percent growth estimate of the global economy and oil import costs of $105 per barrel.

The Korean economy is estimated to have grown 1.5 percent on-quarter in the first quarter of 2011 due to gains of exports and fiscal spending. But the quarterly growth rate is expected to cool to 1 percent in the second quarter.

Despite the building inflationary pressure, the BOK’s Monetary Policy Committee chose not to raise the benchmark interest rate for this month, freezing it at 3 percent on Tuesday.

By Kim Yon-se (kys@heraldcorp.com)