KONTAN.CO.ID - SEOUL. South Korea's central bank said on Tuesday it expects inflation this year to be higher than previously projected due to the Ukraine crisis, global supply bottlenecks and a likely recovery in private consumption as social distancing rules are eased.

"Inflation is expected to exceed 5% by a large margin for a while ... upward pressures will increase more in the second half of this year as overseas supply-side factors continue," the Bank of Korea (BOK) said in its biannual review of inflation-targeted monetary policy.

The BOK, which raised its 2022 forecast for annual average inflation sharply to 4.5% less than a month ago, said it does not rule out the possibility of inflation exceeding the 4.7% reached in 2008.

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Upward pressures to oil prices have increased due to the European Union's embargo on Russian crude oil and petroleum and the easing of lockdown measures in China, the bank said.

On the demand side, the BOK noted that the country's lifting of social distancing rules and an extra budget are likely to add inflationary pressures.

South Korea's inflation accelerated in May for a fourth straight month to 5.4%, the fastest annual rise since August 2008, and stood above the central bank's 2% target for a 14th consecutive month.

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The fourth largest economy in Asia has scrapped all COVID-19-related curbs, except a mandate to wear masks indoors, since late April.

The country last month came up with a 62 trillion won ($48 billion) supplementary budget to support small businesses and the self-employed hit by social distancing restrictions during the pandemic.

Editor: Wahyu T.Rahmawati