The Korea Herald

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Soaring wages stoke inflation fears: data

By Korea Herald

Published : July 10, 2012 - 19:49

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South Korean workers’ wages surged in the first four months of this year, sparking concerns that inflation expectations could build down the road, data showed Tuesday.

South Korean workers’ real wage grew an average of 3.83 percent in the January-April period from a year earlier, larger than an average 2.9 percent growth in consumer prices, according to calculation based data from the labor ministry and the state-run statistics agency.

Last year, the country’s real wage declined 2.74 percent on-year as consumer inflation shot up to 4 percent.

The real wage is calculated by the value of the nominal wage set against the consumer price index.

In the January-April period, the nominal wage rose an average of 6.85 percent from a year earlier. For the whole year of 2011, the nominal wage grew a mere 1.18 percent.

A rise in the real wage came as the growth of consumer inflation has slowed this year amid falling oil prices.

Korea’s annual inflation growth hit a 32-month low of 2.2 percent in June, marking the fourth straight month that headline inflation remained in the 2 percent range.

However, analysts said an upturn in the real wage can increase inflation expectations as consumers expect prices of overall products to go up with higher income boosting their spending capacity.

Korea’s inflation expectation remains high and Korean consumers forecast in May that inflation would reach an annual average of 3.7 percent over the next year.

A sharp gap between consumer inflation numbers and inflation expectations indicates Korean consumers still anticipate rising inflationary pressure over the next 12 months.

Others claimed inflation expectations, driven by a spiral of wage increases, mostly shoot up when the economy is in an expansion phase.

The Korean economy grew 0.9 percent on-quarter in the first quarter. The government revised down its 2012 economic growth outlook to 3.3 percent in June, from its earlier estimate of 3.7 percent. 

(Yonhap News)