The Bank of Korea (BOK) raised its outlook for this year's consumer price inflation to 4.5 percent from 3.1 percent estimated three months earlier.
The BOK said the consumer prices were forecast to rise sharply on the back of higher prices for crude oil and grain, and the deepening supply chain disruptions.
To rein in the runaway inflation, the BOK lifted its benchmark interest rate by 25 basis points to 1.75 percent at the May rate-setting meeting, after hiking it by a quarter percentage point last month.
Consumer prices were projected to rise 2.9 percent in 2023.
Core consumer prices, which exclude volatile food and energy costs, were forecast to gain 3.2 percent this year and 2.6 percent next year.
The outlook for this year's economic growth was revised down to 2.7 percent from 3.0 percent estimated in February.
External uncertainties, such as geopolitical risk in Europe, would serve as a downside risk factor to the South Korean economy, but the eased anti-COVID-19 measures would contribute to the recovery, the BOK said.
Real gross domestic product, adjusted for inflation, was expected to grow 2.4 percent next year.
Private consumption was predicted to expand 3.7 percent in 2022 as the government lifted all anti-virus measures except an internal mask mandate.
The back-to-back rate hikes and surging inflation would increase the burden on households, but the expansionary fiscal policy and the pent-up demand would support the consumption recovery, the BOK noted.
Facility investment and construction investment were projected to decline 1.5 percent and 0.5 percent each in 2022.
Export for goods was expected to increase 3.3 percent this year, but it was sharply down from an expansion of 10.0 percent last year.
The number of jobs was predicted to grow by 580,000 this year, and the forecast for current account surplus was set at 50 billion U.S. dollars.
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