[Editorial] Preparing for the Globalization of Inflation

Inflationary sentiment is spreading due to the United States' tariff wars, exchange rate instability, rising oil prices, and expansionary fiscal policies being implemented by countries around the world.

Choi Haebeom (Former President of Changwon University · PhD in Economics)

Amid this, there is a marked trend of interest rate cuts by various countries following the U.S. Federal Reserve Board's announcement of a rate cut in the second half of the year. Although the Federal Reserve Board's rate cut is intended to support President Trump's economic policies by shifting away from the previous cycle of rate hikes, this move will generally result in excessive liquidity. International oil prices have also remained unstable due to ongoing supply-demand imbalances, such as the Middle East conflicts, and inflationary pressures are being felt globally.

Korea is no exception. With the implementation of livelihood support payments and the unprecedentedly strong nationalism-driven economic policies of President Trump in the United States and domestically, concerns are mounting that the domestic economy may descend into chaos. Since May, consumer prices have risen by 3 to 5 percent each month. As the won-dollar exchange rate has entered the 1,400 won per dollar range, overseas price variables have become a significant burden. In particular, the United States, which had previously provided a relatively favorable export environment for Korea, has now adopted an unprecedentedly hardline stance with tariff pressures, putting export companies on high alert.

A significant number of small and medium-sized enterprises have abandoned exports, while even large corporations are facing limits as profitability deteriorates. The United States is actively encouraging export companies to produce within its borders, raising concerns that the manufacturing base in Korea could be undermined. As a result, not only is economic growth slowing, but inflation has also emerged as a major concern. There is a real risk of cost-push inflation. The inflationary atmosphere, previously overshadowed by real estate speculation countermeasures and economic stimulus efforts, has become clearly apparent in the third quarter. While factors such as the strong dollar and high oil prices are beyond Korea's control, it is necessary to minimize their impact as much as possible.

Ample liquidity in the market is also a factor stimulating inflation. While real estate speculation seemed to be calming down, monetary expansion has continued on the back of a booming financial market. At this rate, inflation could become a major stumbling block for the economy by the end of the year. Furthermore, considering that interest rates are still low, there are many factors that could further fuel inflation. The government itself must continuously monitor monetary management and market liquidity in relation to inflation control. By checking the supply and demand of daily necessities, which can become problematic during periods of political transition, the government must also ensure thorough price management.

Typically, housing prices rise about a year before overall inflation accelerates, but fortunately, as the real estate market has stabilized, it is now more important than ever to focus solely on inflation itself. The reason for paying close attention to price stability is that its impact is substantial and, in many cases, can alter the direction of the entire economy.

In fact, rising prices not only burden ordinary people, but also negatively affect the maintenance of the current low interest rate trend. In addition, wage increases spurred by inflation can undermine competitiveness. This is why active inflation management is necessary. The framework for year-end economic management should also be appropriately adjusted. For example, it is necessary to shift the focus of economic policy from demand stimulation, such as government subsidies, to strengthening competitiveness. If the policy direction has so far been indiscriminate economic recovery, now is the time to prioritize competitiveness as the main criterion and accelerate industrial restructuring by narrowing and adjusting the scope of investments.

Efforts must also be made to ensure sound monetary management. If excessive emphasis is placed on fiscal expansion and domestic demand recovery, this may not lead to a virtuous cycle and could end up destabilizing prices. Therefore, monetary policy should be managed flexibly so as not to hinder economic recovery. Lowering the target for money supply should also be considered, and it is important to properly guide the prices of daily necessities in relation to inflation. It should not be forgotten that disruptions in the supply of agricultural products are anticipated due to flood damage and other factors.

Appropriate measures must also be taken to prepare for the depreciation of the won. In this era of high oil prices, energy conservation and the development of overseas resources must be accelerated. A new government has been inaugurated, and it must implement unprecedented and bold economic recovery policies. In past administrations, when economic instability persisted or people's livelihoods were threatened, public trust declined and many governments eventually became ineffective. I call for the new government to implement groundbreaking economic recovery policies.

Choi Haebeom (Former President of Changwon University · PhD in Economics)

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