Government Warns of Possible 3% Inflation This Month... Concerns Over Economic Recovery Slowdown Due to Inflation

Ministry of Economy and Finance Publishes October Issue of Recent Economic Trends

[Image source=Yonhap News]

[Sejong=Asia Economy Reporter Kim Hyunjung] Despite strong exports and improved employment, the government has pointed out concerns about inflation due to rising raw material prices, diagnosing that the pace of recovery in our economy may slow down. In particular, it stated that the possibility of inflation rising to the 3% range this month cannot be ruled out due to base effects from last year's telecommunications fee support, as well as factors such as rising international oil prices and exchange rates.

On the 15th, the Ministry of Economy and Finance published the 'Recent Economic Trends (Green Book) October issue,' stating, "Recently, our economy has maintained a solid export boom and employment has increased significantly, but uncertainties in face-to-face service industries continue."

Kim Young-hoon, head of the Economic Analysis Division at the Ministry of Economy and Finance's Economic Policy Bureau, explained, "Externally, the global economic recovery continues, but concerns about inflation due to rising raw material prices and supply chain disruptions raise the possibility of a slowdown in the recovery pace," adding, "We will focus on proactive price management and gradual restoration of daily life to recover livelihoods."

Last month, the real economy showed some positive trends despite the fourth wave of COVID-19, with department store sales increasing and consumer sentiment index rising. Department store sales in September increased by 21.9% compared to the previous year, while online sales and domestic card approvals rose by 16.8% and 8.8%, respectively. The consumer sentiment index recorded 103.8, improving from 102.5 the previous month. On the other hand, passenger car sales decreased sharply by 33.3% compared to a year ago, marking seven consecutive months of decline since March this year.

Regarding inflation, there is a possibility of a '3% range' increase this month. Kim said, "Due to the base effect from last year's telecommunications fee support policy, the oil price, which had fallen due to the spread of the Delta variant in July and August, is rising again, and the exchange rate is also increasing," adding, "These three upward factors are significant, so the possibility of a 3% inflation rate in October cannot be excluded." However, he explained, "Agricultural, livestock, and fishery products, which exerted upward pressure on prices throughout the first half of the year, are becoming downward factors due to the arrival of the harvest season," and "Efforts are being made to manage the supply and demand of agricultural, livestock, and fishery products to keep inflation below 3%."

Regarding the domestic economic impact of rising oil prices and exchange rates, he explained, "Theoretically, exchange rate increases are generally viewed positively in terms of growth rate and corporate profitability," and "In the case of oil prices, since they reflect the economic recovery trend, their impact on growth and the economy is more positive." He added, "However, the rise in import prices may somewhat negatively affect domestic demand due to reduced purchasing power," and "Nevertheless, the general view is that the impact of external price variables such as exchange rates and oil prices is gradually diminishing compared to the past, and it is important to monitor whether price variable fluctuations are sustained, so this needs to be closely watched."

This content was produced with the assistance of AI translation services.