Does Lee get inflation?President Lee Myung-bak proclaimed rising consumer prices to be the most urgent issue facing the nation and promised to pay more attention to taming inflation than pushing economic growth. It is a major change for the businessman-turned-president who is well-known for being most interested in economic growth.
But, unfortunately, the horses have already bolted the stable. The key sources of inflationary pressure - global grain and oil prices - have been in an upward spiral for a year. Consumers have long been complaining of harder lives due to high prices of goods in stores. If the government had more sensitive eyes and ears, it should have acted much earlier to rein in runaway prices. Yet the government was obsessed with the vainglorious ambition of attaining dual targets of 5 percent growth and 3 percent inflation this year, regardless of the international and domestic market realities.
Even though the president has issued his urgent call, the government is still dillydallying. It maintains that there is no change in this year’s economic direction.
“Just because the president is keenly interested in inflation, it doesn’t mean we are revising the policy targets of attaining 5 percent growth and 3 percent inflation,” a presidential spokesman said. The government remains deluded and unrealistic. Policies that drive economic growth and those that fight inflation are polar opposites. Economic policies run on two engines: fiscal and financial. Tax revenue and government spending are fiscal instruments, while interest rates and liquidity are financial tools. To spur growth, authorities must expand fiscal spending and the monetary supply. But such moves fan inflationary pressures.
The spike in international grain and oil prices are beyond our control. But there are other factors behind the rises in consumer prices. Most urgent is to quell expectations of higher inflation. If they become widespread, the problem can spill over to other areas. Labor unions can demand pay raises to cope with higher living costs. Such psychological anxiety should be calmed as quickly as possible. To do so, the government must be resolute. It must declare a war on fighting inflation no matter what. It cannot attain anything from stumbling around. It must employ all possible policy tools - monetary and fiscal tightening, currency values and taxes - instead of resorting to retro actions of arm-twisting and harassing companies to lower prices. Stabilizing the economy is imperative. Growth can come later.