The Korea Herald


Korea to pull out all stops against inflation

By 김지현

Published : June 12, 2011 - 19:13

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The government plans to make all-out efforts to stem growing inflationary pressure as South Korea faces potential difficulties in taming inflation in the second half, officials said Sunday.

Finance Minister Bahk Jae-wan presided over a meeting with ministers on Friday to discuss ways to stabilize consumer prices where he suggested 22 policy steps, including the stable management of macroeconomic factors such as the currency and clamping down on price rigging, according to the finance ministry.

The efforts to draw up anti-inflationary steps come as planned hikes in public utility charges slated for the second half are expected to add to inflationary pressure.

Joining the government’s efforts to maintain price stability, the Bank of Korea (BOK) surprised the market on Friday by raising the key interest rate by a quarter percentage point to 3.25 percent in a bid to stem the growing inflationary pressure.

The BOK said core inflation, which excludes volatile oil and food prices, will surpass the growth of consumer inflation later this year, indicating that inflationary pressure from the sustained economic growth will remain high.

As part of anti-inflationary efforts, the government suggested that it will manage macroeconomic variables such as interest rates and the currency in a stable way, a move which could be interpreted as the government’s willingness to allow the Korean won to appreciate to the dollar to stem inflation.

“This does not mean that the government would artificially manage the currency to tame inflationary pressure. This is theoretical, meaning that the government will run macroeconomic policies in a stable manner,” said an official at the finance ministry.

A stronger won helps ease inflation as it reduces pressure from import prices. The BOK forecast consumer inflation will grow 3.9 percent this year though many private think tanks expect consumer prices to exceed 4 percent on high oil prices and the economic growth.

The government, which aims to contain inflation to around 3 percent this year, is widely expected to revise up its projection soon.

Public utility charges, including electricity and gas prices, will be raised starting in the second half, which may hike consumer inflation by 0.3 percent, according to an estimate by a local securities firm.

To minimize the impacts of a rise in utility costs, the government is considering levying differential rates on tolls and electricity charges in accordance with peak times and purposes. 

(Yonhap News)