Respect market principles

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Respect market principles

Consumer prices are rising at a dangerous speed, stoking inflation fears and spurring calls for the government to take action before the situation gets out of hand. Public utility fees - including the cost of electricity and gas - as well as ticket prices for public transportation have all gone up.

Rising prices for imported raw materials and commodities such as oil and grain are also creating inflationary pressure. Additionally, fresh food prices, which directly affect consumers’ wallets, have increased.

Economists are now warning that inflation could surpass the government-targeted 3 percent ceiling this year if the current pace continues. Inflation might become a central focus of the government’s economic policies for the second half of the year and for the Bank of Korea as well. The government is already reportedly considering steps to tame rises in consumer prices, and some experts in the market are betting that the central bank is gearing up for another hike in the benchmark interest rate.

We agree that containing inflation is the most important step to putting the still-shaky economy safely on the recovery track. The government and monetary authorities must naturally keep a close watch on price levels and take necessary actions.

But arbitrary administrative moves to regulate prices or a pre-emptive rate hike won’t help curb inflation. Instead, they will only create unwanted side effects.

The recent increases in consumer prices are mostly seasonable. In other words, the government should not step in, as the growth in prices can’t be slowed down unless there is a drop in demand or an increase in supply.

We worry that government moves to rein in rising consumer prices will serve solely as a temporary stopgap and will end up actually augmenting inflationary pressure over the long-term.

Prices are one of the most useful - and strongest - means to adjust supply and demand in the market. If prices are forcibly prevented from rising or are capped because of monetary measures, they can become distorted.

In this sense, it is worrisome that politicians from both the ruling and opposition camps have recently rushed to criticize the hike in public utilities fees.

Rather, it is time for political circles to refrain from raising concerns on this issue with the administration.

Instead of capping price levels on certain items or hiking interest rates, authorities should be able to find a solution for containing consumer prices by facilitating the supply and demand mechanism of the market.
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