Koreans Must Unite in the Fight Against Inflation

      June 14, 2022 12:54

      U.S. inflation soared to 8.6 percent in May, the highest in about 40 years. The market expected U.S. consumer prices to peak at 8.5 percent in March, but the projections turned out to be wrong. Inflation in the 38 OECD member countries stood at 9.2 percent in April and in Korea at 5.4 percent in May, the highest in 14 years.

      Expectations that central banks around the world will hike interest rates to tame inflation have rattled financial markets and caused economic growth to slow. Supply chain disruptions and the Russian invasion of Ukraine are only compounding woes. The World Bank has slashed its global economic growth forecast for this year from 4.1 percent to 2.9 percent and warned of stagflation, a toxic combination of rising prices and slower growth. Korea's economy is expected to grow only around two percent this year, while inflation is projected at around four percent. This means the country faces the worst conditions since the 2008 global financial crisis.

      The government is teaming up with the Bank of Korea to look for ways to tackle inflation. It lowered or waived tariffs on oil and food to ease the cost burden on businesses and households, while the BOK raised the key rate in April and May to reduce market liquidity. But the government also executed the biggest-ever supplementary budget to hand out money to small businesses hit by the coronavirus pandemic, which seems contradictory.

      There is a strong chance that global supply chain disruptions will continue even if Russia pulls out of Ukraine because U.S.-China rivalry will continue. Astronomical amounts of liquidity remain in the markets after governments around the world pursued quantitative easing to jumpstart economies during the pandemic. As a result, most experts forecast high inflation to continue for at least a year or two. The situation could get worse if it leads to wage hikes, and there are signs this is already happening.

      The government cannot tackle inflation alone. Businesses and workers must pitch in and share the burden. Businesses must keep prices down by trying hard to boost productivity, cut costs and retain staff. Households must reduce their debt and avoid unnecessary spending, and workers must refrain from demanding wage hikes.

      The government must stop throwing money at people and adopt a fresh round of austerity. Non-urgent infrastructure projects should be pushed back and the saved money used to support those in need. Politicians must also work together to come up with basic legal framework to do so.

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