The Korea Herald

소아쌤

[Editorial] War against inflation

By 류근하

Published : Jan. 7, 2011 - 18:43

    • Link copied

Prices of daily necessities are going through the roof. According to the Korea Consumer Agency, during the last week of 2010, the prices of some 90 everyday goods rose sharply from a week ago. They included sugar (38.7 percent), dishwashing rubber gloves (33.1 percent), washing powder (31.9 percent), ketchup (17.8 percent), flour (13.5 percent), tissue paper (12 percent), mayonnaise (9.8 percent), and toilet paper roll (9.2 percent).

As inflationary pressure is expected to further build up down the road, the government is stepping up efforts to stabilize prices. Earlier this week, President Lee Myung-bak called on officials to stage a “war against inflation” to attain the governments’ two key economic goals for 2011 ― 5 percent economic growth and 3 percent consumer price inflation.

On Thursday, the Finance Ministry, pledging efforts on all fronts to fight inflation, said it would unveil a comprehensive anti-inflation package on Jan. 13. The Fair Trade Commission went a step further by announcing its transformation from an antitrust watchdog to a price watchdog.

Kim Dong-soo, the commission’s newly named chairman, declared that price monitoring was the commission’s top priority. He then revamped its organization, creating a large-scale price-monitoring task force. He put the commission’s three key bureaus ― the Anti-monopoly, Cartel Investigation and Consumer Policy bureaus ― under the new task force, giving them a new mission: to detect and punish companies that illegally raise the prices of their products.

The government’s moves indicate that it is determined to attain price stability the old way ― to mobilize all administrative power. For instance, it seeks to pressure universities to freeze their tuition fees this year. It also plans to minimize hikes in public utilities such as electricity, transportation and mailing.

This approach, however, will only have a limited effect because inflationary pressure comes mainly from increases in global raw material and food prices and ultra-loose monetary policies in some advanced countries. Therefore, we advise the government to ensure a gradual appreciation of the Korean won to ease inflationary pressure coming from abroad.

Another way to curb price hikes is to gradually increase interest rates. On Thursday, the Bank of Korea said it would place emphasis on price stability this year. Last year, the bank put more emphasis on helping the economy recover from the global financial crisis. This year, it should put price stability before anything else because its main job is fighting inflation.