Possibility of Over 3% Inflation Rise in 10 Years... Government Concerns Over Inflation-Driven Economic Recovery Slowdown (Comprehensive)

Ministry of Economy and Finance Publishes October Issue of Recent Economic Trends
"Export Boom, Employment Increase... Possibility of Slowed Economic Recovery Due to External Inflation Concerns"

[Image source=Yonhap News]

[Sejong=Asia Economy Reporter Kim Hyunjung] The government forecasted that the consumer price index could rise to the 3% range this month, expressing concerns that the inflation impact may slow the pace of our economy's recovery. If the inflation rate actually reaches the 3% range, it would mark a high inflation level not seen in 10 years amid unresolved COVID-19 impacts.

On the 15th, the Ministry of Economy and Finance published the October issue of ‘Recent Economic Trends (Green Book)’ stating, "Recently, our economy has seen a steady export boom and a significant increase in employment, but uncertainties remain in face-to-face service industries," and added, "Externally, although the global economic recovery continues, concerns about inflation due to rising raw material prices and supply chain disruptions raise the possibility of a slowdown in the recovery pace."

Until June, before the fourth wave of COVID-19, the government had given positive assessments of the domestic economy through the Green Book, such as ‘mitigation of domestic demand slump’ and ‘improvement trend,’ but since July, it has repeatedly mentioned ‘uncertainties’ and expressed concerns. Regarding this economic assessment, it was evaluated that "uncertainties are shifting from the overall domestic demand to face-to-face service sectors and then moving to external factors."

Regarding inflation, it was anticipated that a rise in the 3% range might occur this month. This would mark the first ‘3% range inflation’ era in 10 years since February 2012 (3.0%). Last month, consumer prices rose 2.5% year-on-year, already exceeding the government’s management target of 1.8% on a cumulative basis.

Kim Younghoon, Director of Economic Analysis at the Ministry of Economy and Finance’s Economic Policy Bureau, said, "Due to the base effect from last year’s telecommunications fee support policy and the rise in oil prices and exchange rates following the spread of the Delta variant in July and August, these three upward factors are significant, so the possibility of a 3% inflation rate in October cannot be ruled out." However, he explained, "Agricultural, livestock, and fishery products, which have 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 added, "We will make efforts to manage the supply and demand of agricultural, livestock, and fishery products to keep the inflation rate within 3%."

Regarding the domestic economic impact of rising oil prices and exchange rates, it was analyzed that "theoretically, exchange rate increases are positive in terms of growth rate and corporate profitability," and "since oil price increases occur during economic recovery periods, their positive impact on growth and the economy is greater." However, it was noted that "due to the decrease in purchasing power caused by rising import prices, domestic demand may be somewhat negatively affected," and added, "However, the impact of external price variables such as exchange rates and oil prices has gradually diminished compared to the past, and it is important to monitor whether price variable fluctuations are sustained."

Last month’s real economy indicators showed mixed improvements and deteriorations. Despite the fourth wave of COVID-19, department store sales in September increased by 21.9% compared to the previous year, and 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 plunged by 33.3% year-on-year, marking seven consecutive months of decline since March this year.

Employment in September increased by 671,000 compared to a year earlier, and the unemployment rate fell by 0.9 percentage points to 2.7%. The financial market showed a decline in stock prices and rises in government bond yields and the won-dollar exchange rate due to global inflation concerns and expectations of shifts in major countries’ monetary policy stances.

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