By Kim Jae-kyoung
Producer prices skyrocketed in April due to hikes in the prices of oil and raw materials, fanning worries over stagflation ― a deadly cocktail of rising prices and slowing economic growth.
The Bank of Korea (BOK) reported yesterday that wholesale prices soared 9.7 percent in April from a year ago, the biggest yearly increase in nine and a half years since November 1998 when the prices surged 11 percent.
The growth pace has been accelerating since last December, with prices increasing 8 percent in March from 6.8 percent in February, 5.9 percent in January and 5.1 percent in December
Prices grew 2.6 percent on a month-on-month basis last month, the largest monthly gain in more than 10 years since January 1998.
``Hikes in the prices of oil and raw materials, as well as service fees, drove up the wholesale prices last month,'' a BOK economist said.
``Since oil prices have been running higher amid continuing depreciation of the won against the dollar, it is unlikely that inflationary pressures will wane in the near future,'' he added.
The eye-opening increase in April is expected to give a further headache for policymakers as it came out together with the government's monthly report verifying that the world's 13th largest economy has already gone downhill.
In its monthly economy assessment report, the Strategy and Finance Ministry said that despite robust exports, the economy is suffering from stagnant private consumption and corporate spending amid surging international crude oil prices.
A number of economists and academics are expressing concerns over stagflation, a period of slow economic growth and high unemployment with rising prices.
``The nation has technically entered stagflation, as the economy has been shrinking rapidly with rising consumer prices due to oil price hikes,'' Sungkyunkwan University economics professor and former president of the Korea Economics Association Lee Jae-woong told The Korea Times.
``The problem is that the government has few options to fight against stagflation, as a policy to control inflation may stunt economic growth, and vice versa,'' he added.
He explained that if the government stimulates demand to keep the economy from slipping into recession, it could cause inflation to accelerate. On the other hand, if it controls demand to keep consumer prices from rising further, it may result in a deep recession.
``Stagflation occurs when there are price rising factors on the supply side, such as oil price hikes, while inflation is affected by factors on the demand side, such as expenditure,'' Lee said. ``In this regard, I believe that the economy is now in stagflation.''