Sevinç İrem BALCI
South Korea is one of the rapid growing economies in Asia. South Korea is famous for transforming itself from one of the world’s poorest countries to a developed, high-income economy in just a few generations. Following the Great Recession, South Korea is still one of the world’s fastest growing industrialized countries. She is one of the Next Eleven countries, which have the potential to dominate the world economy by the middle of the twenty-first century.
However, for the last few years, as the other countries in the world, South Korea is facing high inflation, which would lead to economic contraction in the country. Especially, with the start of 2022, the inflation rate increased dramatically.
South Korea’s inflation is anticipated to hit an 11-year high this year, raising the prospect of further interest rate rises later this year as consumer prices in Asia’s fourth-largest economy continued to grow faster than the central bank predicted.
According to official statistics issued on Friday, consumer prices grew 3.6 percent in January from the previous year, a touch lower than the decade high of 3.8 percent in November 2021. For the fourth month in a row, inflation has remained over the 3 percent mark
Consumer inflation is being pushed up by higher raw material prices, such as crude oil, and global supply chain disruptions. Petroleum product prices increased by 16.4 percent, while agriculture, livestock, and fisheries costs increased by 6.3 percent.
Consumer inflation in South Korea remained around a decade high in January, owing to rising gasoline and food prices, bolstering the argument for additional interest rate rises in 2022. Consumer prices rose 3.6 percent in January from a year ago, exceeding the 3.3 percent forecast in a Reuters poll and staying over the central bank’s 2 percent target for the tenth month in a row. Core inflation, which excludes volatile food and fuel costs, increased by 2.6 percent from a year ago, the quickest since December 2015, indicating that rising gasoline and other raw material prices have pushed up service costs for products and services.
Therefore, the President Moon Jae claimed their priority on tackling with the high inflation with those words: “Our utmost priority should be on stabilizing prices for staple goods for our citizens, and I ask for timely deployment of various policies to stabilize prices.” It should be noted that, within few months, President will leave his duty after the elections in May 2022.
The administration is also exploring a number of steps to combat inflation, including extending the gasoline tax reductions. “We will take actions to assure a reliable supply of raw materials, such as enhancing rare metal reserves, raising inventory objectives for each non-ferrous metal, increasing important grain stockpiles, and safeguarding foreign grain supply networks. In particular, we will keep a careful eye on global oil prices and consider extending gasoline tax cuts if the trend continues” said Lee Eog-weon, First Vice Finance Minister.
Inflation isn’t merely a monetary phenomena, though. The societal reaction to market price hikes produces a feedback loop. Expectations of increased costs in the future, for example, may lead individuals to spend more of their current income rather than save. This type of action might hasten inflation. The government’s interaction with the public on expectations might, once again, prevent a vicious cycle from starting.
To sum up, the economy of South Korea, which is quite strong in the Southern Asia, is facing the highest inflation of the last ten years, due to global pandemic. In the beginning of the 2022, it showed the dramatic decrease; therefore, it effected the purchasing power of the consumers and change of the consumption habits. It could probably affect the economic situation of South Korea in the medium term; however, the decision of the government to prioritize the inflation in the country will correct the economic status-quo rapidly. The tax reduction and stabilizing the prices of the basic goods will fix the situation.