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Inflation fears lurk in Korea as consumer prices rise

BOK under growing pressure to hike rate

A man shops in the produce section at a local market in Seoul. (Yonhap)
A man shops in the produce section at a local market in Seoul. (Yonhap)

Because of rising food prices, Lee Jung-min, a 30-year-old Seoul resident, has recently turned to home gardening to substitute buying vegetables from supermarkets.

One of her main crops is green onions. By slicing off the roots of leftover green onions and putting them into a pot filled with soil and compost, Lee has successfully regrown a number of green onions enough for her to eat for a month.

“I was shocked by the price of green onions, which surged to nearly 6,000 won ($5.31) earlier last month, when they were previously around 3,000 won, so I decided to grow them by myself,” Lee said. “Green shoots have continued to emerge from the sliced roots. Over the past month, I estimate that I saved 20,000 won or more on food thanks to home gardening.” 

A combination of pictures show green onions and other vegetables that Seoul resident Lee Jung-min has grown at home. (Courtesy of Lee Jung-min)
A combination of pictures show green onions and other vegetables that Seoul resident Lee Jung-min has grown at home. (Courtesy of Lee Jung-min)

Lee is among a growing number of South Koreans who have been striving to counter skyrocketing food prices by growing vegetables at home.

According to data from Statistics Korea, prices of agricultural, livestock and fisheries products rose 17.9 percent on-year in April, with prices of green onions advancing 270 percent.

Soaring prices of farm products have driven up restaurant prices, with the related index climbing 1.9 percent on-year to 113.02 in the same month, the sharpest gain since June 2019.

“Consumer prices rose amid a short supply of agricultural products and the outbreak of bird flu. Prices of petroleum products also jumped as oil prices picked up,” said Eo Woon-sun, a senior Statistics Korea official.

Driven by soaring food prices, the nation’s consumer price index rose 2.3 percent in the same month from a year earlier, accelerating from a 1.5 percent gain in March.

The figure, which exceeded the Bank of Korea’s annual inflation target of 2 percent, was the fastest on-year gain since August 2017, when the price index climbed 2.5 percent, raising concerns that Asia’s fourth-largest economy may face growing inflationary pressure.

The government vowed to guard against inflation risks, while seeing limited chances of inflation for the time being.

“Inflation growth picked up in March and April due largely to a low-base effect from last year when inflationary pressure remained muted amid the pandemic,” First Vice Finance Minister Lee Eog-weon said on a radio program.

“Given that the local economy is on a modest recovery track led by robust exports, it’s too early to worry about inflation.”

However, market experts say the possibility that consumer prices will further pick up over the next few months remains, in the wake of a hike in raw materials prices.

“Consumer prices could rise by about 3 percent between May and June due to rising raw materials prices, coupled with the base effect from last year, when inflation slowed,” said Ju Won, chief economist at Hyundai Research Institute.

Prices of petroleum products rose 13.4 percent on-year in April, the fastest since March 2017, as oil prices picked up amid a global economic recovery. Also, prices of Dubai crude, South Korea’s benchmark, reached an average of $62.8 per barrel in April, sharply up from $20.4 the previous year, according to data from the Ministry of Economy and Finance.

The central bank’s monetary easing is another possible driver of inflation.

Last month, the BOK froze its key interest rate at a record low of 0.5 percent amid concerns of another wave of coronavirus infections.

As households and companies took out large bank loans amid the ultralow interest rate environment, the country’s money supply stood at 3,313.1 trillion won as of end-March, up 11 percent from a year earlier, BOK data showed.

The focus is now on whether the BOK will review the necessity of a rate hike during its monetary policy board meeting slated for May 27, in light of US Treasury Secretary Janet Yellen’s remarks that “US interest rates may have to rise somewhat to prevent the economy from overheating.”

US’ consumer prices surged 4.2 percent on-year in April, the fastest rise in 13 years, data showed.

“If an economic recovery gains speed in the second half, inflation pressure could build up. Growing inflation concerns would pressure the central bank to modify its current quantitative easing policy,” said Sung Tae-yoon, an economics professor at Yonsei University.

By Choi Jae-hee (