Growing inflation fears… The first economic task of the Yun Seok-yeol administration [세종PICK]

Citizens shopping at a traditional market in Seoul on the 7th. yunhap news

Inflation fears are growing. Inflation, which has been on the rise since the beginning of the year, has risen by 4% in March, continuing its high streak. As external unrest factors such as the Ukraine crisis are added, the situation is worsening. What is more problematic is that there is a forecast that such an inflation will continue for a while. The Bank of Korea also predicted that inflation will exceed 4% in the second half of the year. Given this situation, President-elect Yoon Seok-yeol directly ordered measures to stabilize the livelihood of the people, including inflation. Inflation management is expected to be the first test bed for the new government’s economic policy, which will be launched next month.

The Consumer Price Index (CPI) increased by 4.1% in March, according to the National Statistical Office. It is the first time in 10 years and 3 months since December 2011 (4.2%) that the 4% level was taken.

The ‘4% level of inflation’ is a global relief from the novel coronavirus infection (Corona 19), and the sudden negative impact of the recent Ukraine crisis also played a big role. The Russian invasion of Ukraine has caused international oil prices to soar, raising overall prices.

The price of Dubai crude rose from $83.5 per barrel in January this year to $92.4 per barrel in February and to $110.9 per barrel in March. As a result, domestic gasoline prices have risen to 2,000 won per liter. The contribution of petroleum products to prices increased by 0.53 percentage points from 0.79 percentage points in February to 1.32 percentage points in March. Considering that the consumer price inflation rate rose 0.48 percentage points from 3.66 percent in February to 4.14 percent last month, it means that oil prices are the main culprit behind the inflation.

Prices are expected to rise further in the future. Deputy Prime Minister and Minister of Strategy and Finance Hong Nam-ki recently said, “Inflationary pressure may continue for the time being if we consider the global development situation.” The BOK also predicted that the inflation rate would remain in the 4% range for the time being, and that this year’s annual growth rate would greatly exceed the previous estimate (3.1%).

An employee is refueling a vehicle at a gas station in downtown Seoul on the 8th. news

International organizations are also expressing concerns about Korea’s inflation. The Asian Development Bank (ADB) recently released a report that significantly raised Korea’s inflation forecast for this year from 1.9% to 3.2%. Conversely, the economic growth forecast was lowered from 3.1% to 3.0%. In particular, Pitch (3.8%) and Moody’s (3.9%) predicted much higher than this.

High inflation lowers the value of money and leads to a contraction in consumption in the long run. This is a structure inevitably leading to a vicious cycle that ultimately leads to a decrease in economic growth rate. It is difficult to raise interest rates unconditionally to reduce the amount of money in the market. This is because, as of the end of last year, the ‘interest bomb’ problem occurred when household debt reached 1,862 trillion won.

The government set out to find a trick to managing prices. President-elect Yoon directly ordered measures to stabilize the livelihood of the people, including prices. The transition committee put price control as the first task of the new government.

Ahn Cheol-soo, Chairman of the Presidential Transition Committee. yunhap news

Right now, the takeover committee is considering a plan to suppress the increase in utility rates, such as electricity and gas rates, and to support low-income earners and small businesses. Ahn Cheol-soo, chairman of the acquisition committee, said, “In order to help the industry suffering from difficulties, we need to creatively and actively find other possible measures, such as a temporary freeze or measures to minimize increases in utility rates, such as electricity and gas rates.”

Some voices are concerned that the 50 trillion won second supplementary budget (additional budget) will add pressure to inflation.

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