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Government sitting on its hands

Published: 04 Nov. 2021, 19:25

What has been feared all along has become a reality. Prices have shot up while the government indulged itself in casual optimism. The consumer price index soared 3.2 percent year on year in October, the highest in nine years and nine months. The daily necessity index reflecting grocery shopping prices surged 4.6 percent, the highest in 10 years and two months.

The inflation rate has been hovering above the Bank of Korea’s mid-term target of 2 percent since April, but the government has not taken any action except for a cut in fuel charges. It should have mobilized all possible administrative means to secure raw materials, but it kept repeating that the price surge was temporary and bound to stabilize. As a result, the livelihoods of the common people have become hard.

The spike in international commodity prices and shipping disruptions — which is beyond the government’s power — has been behind the jump in inflation. But external factors cannot be solely blamed. Electricity prices have gone up for the first time in eight years as a result of the government’s hasty phase-out from nuclear reactors, helping push up public service rates 1.1 percent.

Housing costs also jumped due to failures in real estate policy. The universal cut in wireless phone bills by 20,000 won ($17) for 18.88 million adults in October last year also backlashed in fanning inflationary pressure a year later. Yet presidential candidate Lee Jae-myung and the ruling Democratic Party (DP) are mulling another relief grant handout of billions of dollars.

The government hurriedly held a meeting to expand supplies of fresh vegetables and expedite an oil tax cut from next week. But the measures could fall short in reining in inflation.

Surging loan rates is another worry. A bank loan rate added 0.2 percentage point in a day to rise to 1 percentage point in two months. The mortgage loan rate has exceeded 5 percent. If the Bank of Korea raises the base rate to 1 percent as expected on Nov. 25, the mortgage loan rate could top 6 percent. Due to toughened loan regulations, lending has become difficult. Higher interest could harden the lives of debt-financed investors and consumers in difficult living conditions from Covid-19.

The shift to the “With Corona” policy could further fuel inflationary pressure. The government must do all it can to contain prices and navigate the country for a delicate soft-landing from the closure of an ultra-loose interest rate period.