Prices of gasoline and diesel are shown at a gas station in Seoul on April 17.
Photo Credit: https://n.news.naver.com/article/022/0003688760
On April 4, the Bank of Korea announced that the growth rate of consumer prices would hover at a 4% level for the time being. Oil prices peaked at 2,000 won in March and have remained at the 1,900 won level now, over 200 won higher than in February. This inflation implies an increase in household budgets. Furthermore, concerns about price seem to be unsolved as the Ukraine-Russia war has continued. It is noteworthy how international issues like such war can impact the Korean economy.
Inflation refers to rising prices, and it is often considered a good sign of an economy. This is because it brings higher salaries and consumption when the cause of inflation results from the good performance of companies. On the contrary, if the fundamental reason for inflation is a surge in international oil prices or agricultural prices due to poor harvests, it is considered bad inflation. Unfortunately, this is the case in the current situation in South Korea. What is worse, labor wages will likely be stagnant despite higher prices. For this reason, most economic experts expect South Korea's economy to slow down.
Current inflation in South Korea originated from the surging price of oil prices during the Russian invasion of Ukraine. The two countries were the world's leading oil and natural gas suppliers, and their war disrupted the oil supply chain, thereby shortfalls in oil production and increasing oil prices. Moreover, since oil is one of the primary raw materials in manufacturing and transporting, domestic producers have to pay input more than before. As such, producers are reducing production, creating an inflationary force.
Moreover, this current inflation is attributed to the deregulation of South Korea's social distancing restriction. The government continues to expand the number of private gatherings from eight to ten and extend the business hours of multi-user facilities. As consumer activities have been less limited than before, their demand naturally grows, causing inflation.
As a result, the overall price in South Korea has been boosted, and the burden on working households has escalated as well. Unless a wage increase goes with inflation, people might have to consider cutting back on dining out, using a car, and outside activities. There is no exception for students in Incheon Global Campus; they might experience high expenditure on personal consumption, including food costs and commuting costs in Songdo, where the usual price is higher than in other regions.
Since the outbreak of the Ukraine-Russia war, both producers and consumers have had financially challenging times. The pace of inflation is unlikely to decrease for a while. Therefore, there is also a significant possibility that the Bank of Korea will raise the base rate again to alleviate inflation. However, it seems complicated to solve the problem as there is a high risk of companies' bankruptcy for increasing base rate. In this regard, the South Korean government should implement appropriate policies in response to this unavoidable circumstance in the Post-COVID era.
Written by Yoonhye Cho | Staff Writer
Revised by Yu Bin Kwon | Managing Editor
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