'Price Shock' Hits Korea Economy... Bank of Korea Likely to Accelerate Interest Rate Hikes

April Consumer Price Index Up 4.8% Year-on-Year... Highest in 13 Years Since 2008 Global Financial Crisis
International Grain and Oil Prices Surge Due to Ukraine Crisis... Domestic Demand Recovery Following 'Social Distancing Lift' Also Affects

[Asia Economy Sejong=Reporter Son Sun-hee] The South Korean economy has fallen into the worst inflation trap since the 2008 global financial crisis. Following the Ukraine crisis, international energy prices surged sharply, coupled with electricity rate hikes, global supply chain disruptions, and demand recovery, causing last month's consumer price inflation rate to soar to 4.8%, the highest level since October 2008. Although the Bank of Korea is increasingly likely to raise interest rates further starting this month to curb soaring prices, analysts say it will be difficult to escape the 'inflation shock' in the short term.

According to the 'April Consumer Price Trends' released by Statistics Korea on the 3rd, the consumer price index last month was 106.85 (based on 2020=100), up 4.8% compared to the same month a year earlier. This is the largest increase in 13 years and 6 months since October 2008 (4.8%). Until early last year, the inflation rate fluctuated between 0-1%, and there were expectations of a 'base effect' as the rate entered the 2% range in April, but instead, the increase expanded by 0.7 percentage points compared to last month (4.1%).

Statistics Korea estimated that even if the consumer price index remains at the current level until the end of the year, the annual inflation rate will be around 3.9%. This essentially means that surpassing the 4% annual inflation rate is almost certain.

The consumer price inflation rate in April soared to the high 4% range, the highest level since the 2008 financial crisis. On the 3rd, citizens were shopping at Yeongcheon Market in Seodaemun-gu, Seoul. Photo by Moon Honam munonam@

The cost of living, which reflects the 'felt inflation,' is rising sharply. Last month, the living cost index was 108.49, up 5.7% compared to the same month a year earlier. This is also the highest level in 13 years and 8 months since August 2008, when it recorded 6.6%. The core inflation rate (excluding agricultural products and petroleum products), which shows the underlying trend of prices, also rose by 3.6%, the largest increase since December 2011 (3.6%).

Oh Woon-seon, Director of Economic Trend Statistics at Statistics Korea, analyzed, "Prices of industrial products such as petroleum products and processed foods, as well as personal services, continued to rise significantly, while prices for electricity, gas, and water also expanded their upward trend. The month-on-month increase (0.7 percentage points) is mainly due to the expanded rise in petroleum products and electricity and gas rates."

Although the government is implementing measures such as the largest reduction in fuel tax and the application of tariff quotas, these efforts are insufficient to control the rising prices. Massive liquidity released over the past two years due to the COVID-19 pandemic, along with international grain and oil price increases, are driving inflation. Amid this, the government plans to prepare a large-scale supplementary budget (supplementary budget) of at least 33 trillion won soon.

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