Korea's inflation accelerates at fastest pace in 11 years

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Consumer prices rise over 4 percent for first time in 11 years

By Lee Min-hyung

Korea's inflation has been accelerating at its fastest pace in over a decade, with consumer prices topping 4 percent in March for the first time in 11 years.

This was sparked by global oil price hikes following the outbreak of war in Ukraine earlier this year, according to Statistics Korea. The statistics agency said that the nation's consumer price index stood at 106.06 in March, up 4.1 percent from the previous year.

The figure is well above the 3.7 percent year-on-year gain in February and the highest since December 2011, when consumer prices jumped 4.2 percent.

This year, consumer prices have been on a gradual rise amid unceasing geopolitical uncertainty in Eastern Europe. This increases the likelihood of Korea's annual consumer prices rising by more than the 3.1 percent projected earlier by the Bank of Korea.

Statistics authorities and experts expect consumer prices to continue rising to a worrisome level for some time, in large part due to external risks.

"The price level will be under upward pressure due to the war between Russia and Ukraine," Eo Woon-sun, an official at the economic statistics division of Statistics Korea, said.

"There stands a slim chance of the rising price level to moderate in the meantime."

Finance Minister Hong Nam-ki also warned of a steep rise in consumer prices here, saying that the geopolitical uncertainties will keep driving up prices.

After Statistics Korea released the data, the presidential transition committee pledged to take measures to ease the burden on the public at a critical time when consumer prices and the benchmark interest rate are rising rapidly.

"We need to proactively and creatively find measures ― such as temporarily freezing public utility rates ― to help support industries," said Ahn Cheol-soo, chairman of President-elect Yoon Suk-yeol's transition committee.

Experts say there are few cards that the government can play to stabilize consumer prices here, as the increase was mostly caused by external risk factors.

"The government does not have many options to stabilize prices here, except for lowering fuel taxes or freezing public utility rates," Kang Hyun-ju, an economist at the Korea Capital Market Institute, said. "This is because the ongoing price rise was sparked by overseas factors."

The government also has to remain careful before executing supplementary budgets to help support the self-employed or small business owners, as this can result in raising price levels further here, according to the economist.

However, he predicted that such external uncertainties would be gradually alleviated in the second half of 2022.

Kim Dae-jong, a professor of business administration at Sejong University, said the key to price stabilization here lies in the timing of a normalization in global trade.

"The best-case scenario is an earlier end to the war in Ukraine," he said.

"As the Korean economy is heavily reliant on trade, the nation is highly vulnerable to disruptions in the global distribution chain. If the war persists, the prices will remain unstable and stay at a high level."

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