Inflation kills

Home > Opinion > Columns

Inflation kills

Published: 16 Jul. 2024, 20:06

Koh Hyun-kohn
The author is the executive editor of the JoongAng Ilbo.

The first TV debate last month between President Joe Biden and his Republican rival and predecessor Donald Trump took off with economic issues. Biden claimed that Trump had handed over a “declining economy” to his administration. “The economy collapsed” under Trump, said Biden, and when he came into office, “what we had to do was try to put things back together again.” In reaction, Trump accused Biden of doing a “poor job” on the economy and presiding over a disastrous rise in inflation, which has reached the most serious level since the oil shock in the 1970s. Trump’s words sounded more convincing. Biden’s enemy is not only health issues; inflation holds another key to his election victory in November.

Cost of living matters everywhere. Inflation is the measurement of this cost. Being on the right or left comes afterwards. All governments that failed to tame inflation came down. U.S. President Jimmy Carter failed to get re-elected in 1980 because of stagflation. Both inflation and unemployment rates hovered above 10 percent at the time. His winning Republican rival Ronald Reagan famously said, “Inflation is violent as a mugger, as frightening as an armed robber and as deadly as a hit man.” In the early 1990s, George H.W. Bush enjoyed historical popularity in his first three years thanks to a halo of the end of the Cold War and his handling of the first Gulf War. But his job rating sank amid high inflation and the crisis of savings and loan associations. His Democratic contestant Bill Clinton went after his weakness with the iconic campaign slogan “It’s the economy, stupid.” That strategy led to his success in the 1992 presidential election.

Supply disruptions from the years-long pandemic and the Russia-Ukraine War have fueled a fiery inflationary run across the world. The inflation rate rose 5.8 percent on average across the world last year. Frustrated voters punished governing powers. The Labor Party returned to power in the United Kingdom for the first time in 14 years. France faces a hung parliament as no party secured an absolute majority in the recent parliamentary election, with President Emmanuel Macron’s centrist alliance losing first place to the far-left counterpart. Reformist Masoud Pezeshkian won Iran’s presidential election against the conservative front. All these countries are struggling with high inflation. As long as the public is vexed by a high cost of living, judgments on incumbent governing powers will continue.

Inflation also worked as a make-or-break determinator in Korean politics. In 1979 when strongman Park Chung Hee was assassinated, inflation soared to 18.3 percent. Inflation ran above 10 to 20 percent for six straight years due to the global oil shock. The Park Chung Hee regime collapsed for many reasons, but high inflation also contributed to his fall. Liberal presidents Roh Moo-hyun and Moon Jae-in couldn’t sustain power due to the surging real estate prices during their terms. The governing People Power Party (PPP) scored poorly in the April parliamentary elections due to the spike in fresh food prices. President Yoon Suk Yeol made the matters worse with his casual remark about the price of green onions.

Prices still torment the lives of the hoi polloi. Most cannot agree to the government describing inflation as “stabilizing” shortly after the year-on-year gain in the headline consumer price index eased to 2.4 percent in June. The heat just got less intense.

Consumer livelihood cannot be relieved just because the rise in the price of cold noodles stalled after shooting up to 15,000 won ($11) per bowl from 10,000 won. Against 2021, the inflation rate jumped 14 percent. The gain in daily necessities has been even steeper. Fresh food prices rose 11.7 percent on year last month. Prices of pears soared 139 percent and apples 63 percent. Fruit and vegetable prices in Korea are the highest among the OECD members. Korea has added one more infamous No. 1 rank in the OECD scale, along with its birthrate, elderly poverty rate, suicide rate and gender gap in wage.

But we cannot find any sense of urgency in the government as it repeats the same old promises of paying attention to improving retail structures and market oversight on top of fiscal support. High interest rates alone cannot tame inflation. The restrictive monetary policy cannot go on, as it chokes the 8 million self-employed. We need an entirely new approach to inflation. Agricultural products are said to be behind 30 percent of the inflationary gain. The government needs to pay heed to the advice from Bank of Korea Gov. Rhee Chang-yong to consider allowing imports of apples and pears.

Prices cannot come down easily, and it takes time for them to normalize. Until then, pain-sharing may be inevitable. The public sector should streamline, and producers might have to shoulder losses. Retailers — delivery app platforms in particular — should strive to lessen the margin, and consumers would have to endure strong prices for the time being.

The government’s role is to coordinate all economic players to yield a little and find workable price levels. What use are all the debates about inflation when an apple costs a whopping 5,000 won? Housing prices have also joined the inflationary bandwagon. A government fails if it cannot solve inflation no matter how well it does in other areas. The government will lose power if it sits on its hands in the face of soaring prices.