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Inflation expected to accelerate further in 2nd half

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Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho speaks during an emergency meeting of economy-related ministers at Government Complex Seoul, Sunday. Yonhap
Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho speaks during an emergency meeting of economy-related ministers at Government Complex Seoul, Sunday. Yonhap

Government vows all-out measures to minimize shock from abroad

By Yi Whan-woo

Korea's inflation is widely expected to accelerate further and keep setting new highs in the second half of this year, according to analysts, Sunday, amid speculation that consumer prices in June grew at the fastest pace since the 1997-98 Asian financial crisis.

The government is scheduled to announce the June inflation rate on Tuesday, which officials forecast to be above 6 percent for the first time since November 1998 when it stood at 6.8 percent.

The worsening inflation outlook comes as new and existing causes of price increases here and abroad make the inflationary cycle more complicated to tackle.

Domestically, the government plans to hike utility fees again in October, after the prices of electricity and gas were raised, Friday, in a bid to cap snowballing losses at state-run energy firms.

The planned hike in October is likely to further increase living expenses and production costs, which can lead workers to demand higher wages amid a decline in their real income.

Outside Korea, soaring oil prices triggered by a prolonged war in Ukraine and disrupted supply chains are offsetting the anticipated effects of a fuel tax cut by the maximum legal cap of 37 percent beginning on Friday.

The oil price hike is mainly responsible for a sharp rise in import prices in the first half, which advanced 26.2 percent year-on-year to $360.6 billion, according to the Ministry of Trade, Industry and Energy.

The country accordingly logged a deficit of $10.3 billion in the January-June period, which was the highest figure for any first-half period.

Also affected by the Ukraine crisis, grain prices have been rising rapidly for seven consecutive quarters since October to December of 2021 and are likely to let up in the fourth quarter at the earliest, according to the Korea Rural Economic Institute.

"The inflationary pressure caused by energy prices and other factors is indeed too high for us to predict when inflation will peak," said Yonsei University economics professor Sung Tae-yoon.

Joo Won, deputy director of the Hyundai Research Institute, voiced a similar view.

"Consumer inflation growth will possibly hit the highest level between June and August," he said, noting consumer prices began to advance rapidly since August 2021, while a year-on-year increase may lose steam after this summer.

"But even so, the forecast is open to change considering that food prices are rising and scorching weather can add to such a rise."

Expanding trade financing for exporters

In a bid to tame inflation and soften the blow of external shocks, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho convened an emergency meeting of economy-related ministers, Sunday.

He previously forecast that inflation in June as well as in July and August could rise above six percent and that high inflation will "persist for a certain period of time." First Vice Finance Minister Bang Ki-sun and Bank of Korea Deputy Governor Lee Seung-heon made similar forecasts.

"The government should be ready to take preemptive measures to prevent external shocks from having a ripple effect not only on prices and markets, but also on the real economy," Choo said during the meeting at Government Complex Seoul.

He warned that the ripple effect of the external risks on the country are "getting stronger to further expand inflationary pressure and market volatility."

Against this backdrop, the government pledged all-out measures to provide full support to bolster exports, a lone engine that had underpinned the economy amid the COVID-19 pandemic.

To that end, the government will provide an additional 40 trillion ($30.8 billion) won in trade financing, while diversifying export destinations by expanding presence in Europe and Southeast Asia as well as pushing for more drastic deregulation to support new business opportunities.

Yi Whan-woo

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