Value context and insight. lkm@koreatimes.co.kr
Korea expected to see high inflation level continue in 2022
A woman walks by a greengrocer in a traditional market in Seoul, Dec. 5. Korea Times file
By Lee Kyung-min
Finance ministry to strengthen risk management
By Lee Kyung-min
Korea has registered 2.5 percent annual headline consumer price inflation in 2021, which is the highest in 10 years, elevating anticipation over the timing and number of the central bank's key rate hikes, the most broad-based policy measure used to bring under control the faster-than-expected increase in goods and services prices.
The 2.5 percent inflation measured by Statistics Korea is an addition of 1 percentage point from the 2.4 percent the government had expected, and has not veered off too much from the previous projections.
Korea is forecast to register high inflation early next year, as evidenced by the year-on-year figure exceeding the psychologically significant 3 percent for the three consecutive months since October.
Further strengthening such expectation is soaring commodities prices notably crude oil, crops and raw material prices that show no signs of immediate stabilization, coupled with a moderate yet sustained recovery in global demand for consumption. Global supply chain vulnerabilities have yet to see any material breakthrough in limiting risk exposures for manufacturing among key growth driver industries, a major trigger for sudden, steep price fluctuations.
Bank of Korea (BOK) Governor Lee Ju-yeol indicated Friday that the benchmark key rate could be raised further next year, placing greater emphasis on the need to “closely monitor whether inflation is likely to run longer than expected,” sustained by the combination of rising prices and inflation expectations. In his New Year's address, the BOK chief Lee confirmed a plan to adjust the degree of monetary easing in accordance with improvements in economic development.
The key rate stands at 1 percent, following two 25 basis points hikes in August and November. The central bank lowered the rate to an all-time low of 0.5 percent as part of emergency easing brought on by the COVID-19 pandemic.
The statistics agency data showed this year's inflation was the highest since 2011 when the figure stood at 4 percent. The annual figure soared from 0.5 percent last year, up from 0.4 percent in 2019.
The mid-2 percent figure was prompted by an increase in prices of industrial goods, personal services and agricultural and marine products. Inflation as measured by 141 frequently purchased necessities including food rose 3.2 percent, year-on-year, the fastest increase since 4.4 percent registered in 2011.
Core inflation excluding volatile food and energy prices rose 1.8 percent, the sharpest increase since 2015 when the figure was 2.2 percent.
Agricultural items, livestock and fisheries products spiked 8.7 percent this year, the steepest increase since 9.2 percent logged in 2011. Petroleum prices jumped 15.2 percent, the fastest increase since 2008 when there was a 19.1 percent surge.
After the release of the data, Deputy Prime Minister and Finance Minister Hong Nam-ki said the government will spare no efforts to enhance the vitality of consumption, state-run and private investments and exports, a policy to be pursued with thorough containment measures.
“We will strengthen risk management with the political and policy transitions in mind with pre-emptive and prompt response measures,” he said in a New Year's address.