SEOUL, June 17 (Reuters) - South Korea's central bank said on Wednesday inflation was expected to exceed its target through next year, as upward price pressures remained high despite progress in talks between the U.S. and Iran to end the war.
"Going forward, inflation is expected to stay high for a considerable period of time. Although oil prices will gradually decline as the war situation eases, it is expected that cost-side price increase pressure from high oil prices and foreign exchange rates
will feed through to other products," the Bank of Korea (BOK) said.
Consumer inflation will stay around 3% in the second half of the year and continue to exceed the central bank's medium-term target of 2% next year on growing demand-side pressure from wage increases, such as big bonus payments at some technology firms, the BOK said in its semi-annual report on inflation-targeting policy.
The central bank's outlook strengthens the case for monetary tightening as early as next month, after consumer inflation quickened in May to a more than two-year high of 3.1%, driven by elevated oil prices from the Middle East conflict.
Details began to emerge on Tuesday of the U.S. and Iran's interim agreement to end the war in the Middle East, with U.S. President Donald Trump saying it will rule out a nuclear weapon for Tehran and a U.S. official adding that Iran will be allowed to sell oil upon signing.
On Tuesday, the Bank of Japan raised interest rates to a 31-year high in a well-telegraphed move toward policy normalisation, signalling readiness to tighten further as it confronts price pressures from the war-induced energy shock.
A majority of Bank of Korea board members said policymakers should prepare for tightening soon, given escalating inflationary pressures from high global oil prices and robust export growth, minutes from the bank's meeting last month showed on Tuesday.
(Reporting by Jihoon Lee; Editing by Jacqueline Wong)
