3% Inflation Rate After 10 Years... Will It Lead to Wage Increases?

[Sejong=Asia Economy Reporter Son Seon-hee] Last month, the consumer price inflation rate rose to the 3% range for the first time in over 10 years, reaching its highest level. As the year-end approaches and companies prepare for wage and collective bargaining negotiations, attention is focused on whether the inflation rate will lead to wage increases.

According to the 'October Consumer Price Trends' announced by Statistics Korea on the 2nd, the consumer price index last month recorded 108.97 (based on 2015=100), rising 3.2% compared to the same month last year. This is the largest increase in 9 years and 9 months since January 2012 (3.3%).

The sharp increase in the consumer price index growth rate, which had been in the 2% range since April, was largely due to the base effect. In October last year, the government supported telecommunications fees of 20,000 won per person for citizens aged 16-34 and over 65, which lowered the inflation rate (0.1%). With the end of the telecommunications fee support, the increase appeared significantly. It is analyzed that this affected last month's inflation rate by about 0.7 percentage points.

Even excluding this, the inflation rate remains in the mid-2% range. This was largely influenced by the continuously rising international oil prices in the second half of the year. Looking at individual items, the petroleum product price increase reached 27.3%, the highest since August 2008. Gasoline (26.5%), diesel (30.7%), and automotive LPG (27.2%) all rose. Processed foods, including bread (6.0%), also increased by 3.1%.

Recently, the strength of raw material prices has also pushed up consumer prices. The recovery in consumption and disruptions in global supply chains have combined to significantly raise logistics-related costs.

The annual inflation rate for this year is projected to be 2.2?2.3%. The government's forecast that prices would stabilize in the second half of the year has been off, resulting in the first 2% range inflation rate in 9 years since 2012.

As the inflation rate rises like this, companies entering the year-end labor-management wage and collective bargaining season are on high alert. It is difficult to predict how long the current inflation, based on high oil prices, will continue.

Not only domestically but also in major countries such as the United States and the European Union (EU), high levels of inflation are occurring, while the U.S. Federal Reserve (Fed) has recently reiterated its stance that inflation will be 'transitory.'

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