Shock from Ukraine to Intensify by Month-End... Will Consumer Price Inflation Rise Above 4%?

Concerns Over Low Growth and High Inflation Spread

[Asia Economy Reporter Seo So-jung] As the Ukraine-induced price shock intensifies from the latter half of this month, there is a growing expectation that the consumer price inflation rate for March will exceed 4.0%. Although upward pressure on prices is increasing daily due to the Ukraine crisis, there are criticisms that the government's projections fall short of this reality.

According to the economic sector on the 6th, forecasts that the March consumer price inflation rate will surpass 4.0% are gradually increasing. A consumer price inflation rate in the 4% range has not been seen for over 10 years since December 2011, when it recorded 4.2%. The February consumer price inflation rate was 3.7%, marking five consecutive months of inflation in the 3% range.

In particular, the Ukraine crisis is further heightening concerns about price shocks. With crude oil, natural gas, and grain prices already soaring, and if exports?which have driven the Korean economy?are hit due to the confrontation between the West and Russia, stagflation fears may arise, where prices surge amid slowed growth.

Experts foresee a high possibility that the consumer price inflation rate will soon reach the 4% range, following a rise to the high 3% range due to international oil price increases. On the New York Mercantile Exchange (NYMEX), West Texas Intermediate (WTI) crude oil futures closed at $115.68 per barrel on the 4th, marking the highest price since September 2008.

Assuming a typical one-month lag between the surge in raw material prices following Russia's invasion of Ukraine and their impact on domestic consumers, the domestic price level could be significantly affected by the end of March.

The government expects this year's inflation to follow a pattern of rising early and falling later. Until November last year, the Bank of Korea forecasted a 2.0% inflation rate for this year but only revised its projection sharply upward to 3.1% on the 24th of last month. Considering that the Bank of Korea's forecast was made before the outbreak of the Ukraine crisis, there is a strong possibility that future inflation projections will increase further.

There is also an analysis suggesting an increased likelihood of entering 'Slowflation,' where inflation rises amid a slowdown in economic recovery, due to Russia's invasion of Ukraine.

On this day, the Hyundai Research Institute stated in its report titled "Increasing Possibility of Slowflation Triggered by the Russia-Ukraine War," "The leading index cyclical component, which predicts future economic directions, has been declining for seven consecutive months, raising concerns about economic downturn," and added, "In response to the possibility of simultaneous supply- and demand-side inflationary pressures after the second quarter, macroeconomic policy directions must be carefully set."

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