Inflation In Korea

written by 20207 Moon Hyeon Ju 

The era of more than 3,000 won per kimbap has arrived. 

According to the Consumer Agency Price Information Service, the average price of kimbap in August was 3,046 won, from 2,969 won last month. Considering that in 2019, the cost of a kimbap was 2,400 won, it isn’t difficult to find that the price of things has recently soared. 

This price increases because of inflation. Inflation is the economic phenomenon where the value of currency decreases, which leads to a rise in the price of goods.

Why Does It Happen? 

In the case of recent inflation, there was a rise in the interest rate in the U.S., a trade slowdown, and increased debt worldwide that made the purchasing power decline.

What Are Some Problems?

First, the gap between the rich and the poor can be widened. When inflation happens, the value of currency decreases. For ordinary people or salary workers who do not own or rent homes, real income decreases due to the depreciation of the currency.

Second, when inflation occurs, the price of domestic goods becomes relatively higher than that of foreign goods. So, people start to buy those foreign goods, which can lead to the contraction of the Korean economy.

The Central Bank of South Korea is trying to increase the interest rate to prevent an economic contraction. The interest rate is the price of the money, which is the ratio of money paid in exchange for borrowing it. If the interest rate increases, it is hard to borrow money, so people start to decrease their consumption. 

Professor Gu Gi Bo at Soongsil University’s department of commerce said “Rather than excessive interest rate hikes, it is important to find an appropriate interest rate level by comprehensively considering the domestic economic situation.”

The problem with raising interest rates too much is that as people start saving, the money spent on the market decreases. In other words, companies can be hit, and the economy can contract.

Inflation can be seen as a short-term phenomenon; however, the IMF said that this inflation in Korea hasn’t reached its peak. They expected there would be much more harm, and recession as inflation in South Korea gets worse.

Therefore, the Central Bank of South Korea should take the appropriate action by slowly raising interest rates and stabilizing inflation. Furthermore, with the IMF’s forecast that South Korea will fight inflation until 2024, the Korean government and banks should try to make up for it.