[Weekly Review] First 'Price Shock' in 13 Years Since Financial Crisis... US Fed Raises Interest Rate by 0.5%p

[Asia Economy Sejong=Reporter Son Seon-hee] Last month, the consumer price inflation rate soared to 4.8%, the highest level since October 2008. This was the result of a combination of factors including the sharp rise in international energy prices following the Ukraine crisis, electricity rate hikes, global supply chain disruptions, and demand recovery. It is expected that this inflationary trend will continue for the time being.

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 last year. 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 it had just entered the 2% range in April, so there were expectations of a 'base effect,' 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. Earlier, the International Monetary Fund (IMF) also projected South Korea's annual inflation rate at 4.0%.

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@

Faced with the worst inflation in 40 years, the United States also implemented a sharp interest rate hike. On the 4th (local time), the U.S. Federal Reserve (Fed) held a regular Federal Open Market Committee (FOMC) meeting and announced a 0.5 percentage point increase in the benchmark interest rate, which was previously 0.25-0.5%. This is the largest hike in 22 years since May 2000 during Alan Greenspan's tenure as chairman. As a result, the U.S. benchmark interest rate rose to 0.75-1.0%.

The Bank of Korea is also expected to accelerate additional interest rate hikes. The Bank of Korea is scheduled to hold a Monetary Policy Committee meeting on the 26th, which will be the first chaired by the new governor, Lee Ju-yeol.

Since there were two rate hikes in January and April, it was initially expected that the upcoming Monetary Policy Committee meeting would take a 'breather,' but the global inflationary trend has recently intensified, causing a rapid shift in sentiment.

Recent unusual movements in the foreign exchange market are also a variable. Concerns over the U.S.'s sharp tightening, economic slowdown due to China's lockdowns, and the prolonged Ukraine crisis have caused the won-dollar exchange rate to rise sharply, increasing inflationary pressure. The won-dollar exchange rate has risen to the high 1200 won range, nearing 1300 won.

The new government’s economic team, set to launch next week, is also expected to prioritize 'inflation.' Chu Kyung-ho, the nominee for Deputy Prime Minister and Minister of Economy and Finance, who passed the parliamentary confirmation hearing last week and is about to take office, stated during the hearing that "there is a possibility that upward pressure on prices will continue for the time being" and assessed that "the situation is very serious." He also identified 'price stabilization' as the most urgent issue facing the new government.

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