Korea in Inflation Danger Zone
By Yoon Ja-young
Staff Reporter
Consumer prices rose 3.6 percent in December from a year ago, the highest pace since 2004 October. Inflation pressure following the international oil price hike and the rise of agricultural products prices are weighing on the economy.
According to the National Statistical office, consumer prices gained 0.4 percent from November, recording a 3.6 percent year-on-year increase. The index soared above the 3 percent mark for three consecutive months. Still, the average gain for the full-year is expected to come in at below 3 percent.
Oil products and agricultural goods led the hike along with public service fees.
Concern is rising among economists over inflation. ``Inflation, as measured by consumer prices, is expected to soar above 3 percent for the first time in four years in 2008,'' LG Economic Research Institute said.
It cited the pressure from the aggregate demand side following slow recovery of domestic economy along with rising global raw material prices as major inflation factor. ``The oil prices will push up public service fees such as public transportation fees and light and heat expenses,'' the economic think tank said.
The weakening of the Korean won, which is good news for exporters, is another burden when it comes to inflation. ``Strong won during the last few years has been offsetting the inflation pressure from the outside, lowering down won-prices of imported goods,'' it said. The offsetting factor is expected to dwindle from 2008.
The global concern over stagflation is on the rise. Major economies around the world saw a hike in the consumer price index for November. Former Fed chairman Alan Greenspan said in an interview on ABC's ``This Week'' that the period of remarkable disinflation is coming to an end. ``That period is now coming to an end, and the evidence is clearly there in rising export prices coming out of China. It's showing up in a slowed rate of productivity growth in the United States and elsewhere, and we are beginning to get not 'stagflation,' but the early symptoms of it,'' he was quoted as saying.
China has been exporting cheap goods to the global economy, but now China and other emerging markets turned into the source of inflation, pushing up the energy and food prices as major consumers. China itself is also menaced by doom of inflation, seeing the consumer price index rising to 6.9 percent. Bank of Korea said it is difficult to expect ``China effect,'' which lowered down consumer prices here. The central bank estimates consumer prices to rise 3.3 percent in 2008.
The Chinese government's tight-money policy to cope with the inflation can harm Korea's export. China is Korea's biggest export market.
Korea Institute of Finance lowered down the economic growth outlook for 2008 by 0.3 percentage point to 4.8 percent from the previous outlook in October, citing the financial market turmoil following the U.S. subprime mortgage problem and rising oil prices. It expected the consumer price to rise 3.2 percent.
Some also raise concern that President-elect Lee Myung-bak's growth-oriented policy may add to the inflation pressure. Lee has pledged an annual 7 percent economic growth through his presidency.