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High oil prices have pushed consumer price growth over 5 percent for the first time in nine years and seven months. The Bank of Korea also said Monday that the economy will grow 3.9 percent in the second half of this year, significantly lower than the earlier estimate of 4.4 percent. The forecast has fueled concerns of stagflation (inflation amidst low growth) in the latter half if the price of Dubai crude, currently US$130 a barrel, reaches $150.
Many countries suffered from stagflation, a vicious coupling of depression and inflation, during the two oil shocks of the 1970s. Stagflation causes immense pain for households, the self-employed and most economic players. Experts predict stagflation, should it come, will shock the Korean economy to the level of the 1997 financial crisis.
The National Statistical Office also announced Monday that consumer prices climbed 5.5 percent year-on-year in June, the highest growth since 6.8 percent in November 1998, in the wake of the financial crisis. Inflation was 2.5 percent last year but has sharply risen this year, from 3.9 percent in January, 4.1 percent in April and 4.9 percent in May. The Strategy and Finance Ministry attributes the rise to soaring oil and raw materials prices increasing the cost of oil-related products and service fees such as private institution tuitions. Prices of industrial goods rose 10.5 percent (gasoline 22.8 percent, diesel fuel 51.3 percent, bread 17 percent, biscuits 15.7 percent) while private service fees also surged (kindergarten tuition 8.4 percent, private university tuition 7.3 percent, tuition for college entrance cram schools 7.2 percent).
The central bank lowered its second half growth forecast from 4.4 percent to 3.9 percent on inflation-triggered sluggish spending, investment and output. Accordingly, the bank predicts 4.6 percent growth and 4.8 percent inflation for the full year. The current account deficit for this year was also adjusted from $3 billion to $9 billion and new jobs from 300,000 to 190,000, which is the lowest since 199,400 in 1998.
(englishnews@chosun.com )
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