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A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.

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Jun 06 2014

BoK’s Inflation Expectations Set to Miss Again

ECRI has just updated its Korean Future Inflation Gauge (KOFIG). The value of this forward-looking gauge lies in its ability to predict cyclical turns in Korean inflation.

While Korea’s May inflation rate grew at its fastest pace in 19 months, it still remains far below the Bank of Korea’s (BoK) target band of 2.5-3.5%. However, the BoK expects inflation to pick up in the second half and breach the lower bound of its target rate, mirroring the bank’s expectations in 2013 that never materialized. Still, this has led some observers to speculate that the BoK will finally raise its policy rate, which has been unchanged for more than a year.

The latest update to the KOFIG clarifies the future trajectory of Korean inflation, providing insight into whether second-half inflation will disappoint as it did in 2013, or if it will put pressure on the BoK to raise rates.

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