Korea’s Inflation Highest in April at 4.6%: The DONG-A ILBO

The rapid rise in consumer prices of 4.8% in April year on year suggests that the Korean economy is facing challenges marked by three peaks in inflation, oil prices and exchange rates. Inflation in April was the highest in 13½ years since October 2008 during the global financial crisis. The rate of increase in the consumer price index, which consists of daily necessities such as rice, ramyun and eggs, reached 5.7%. If we include real estate prices as for other advanced countries when calculating inflation, the real inflation rate would be higher by 1 to 2 percentage points.

Global inflation is the result of rekindled consumer demand in which governments and central banks around the world have worked together to increase liquidity in the pandemic situation against constrained supply situations caused by the disruption of the global supply chain and the war in Ukraine. Energy prices such as oil and natural gas, raw materials – nickel, cobalt and lithium – needed to produce electric cars and batteries, agricultural prices such as flour and have barely soared , and experts say it will take at least two years to return to normal situations.

The Bank of Korea will be forced to consider its interest rate policy going forward as the US Fed raised its key rates this morning. He had already hiked base rates to as much as 1.5%, but if the US continues to hike by 0.5 percentage points, it will drive US rates higher, suggesting foreign capital flight. About 13.76 trillion won of foreign capital left the Korean stock market in the first four months of the year. If we raise interest rates too quickly, it will impact the economy, increasing interest charges for households and businesses, causing stagflation.

We see growing competition for talent between IT companies and conglomerates, with increased demand for higher wages in low-productivity companies triggering labor management disputes, initially triggered by higher wages in delivery markets of food. Coupled with rising utility prices, small and medium-sized businesses and the self-employed are being pushed to face more daunting challenges than ever before.

Such complex challenges seen from home and abroad are very difficult, even when supported by close collaboration between the government and the central bank. Even so, the outgoing government has turned a blind eye to the fight against inflation while the new government, which still does not have a cabinet, is concerned about local elections to be held in four weeks, suggesting barrel policies pork which fuel higher interest rates. . To prevent the economy from collapsing, we must remain vigilant and remember that we are at a critical point.

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