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(News Focus) S. Korea launches 'all-out' war against inflation

All Headlines 14:05 January 13, 2011

SEOUL, Jan. 13 (Yonhap) -- South Korea launched its "all-out" war against inflation on Thursday, promising that its top policy priority during the first half of this year will be stabilizing prices and helping the livelihood of working-class people vulnerable to economic turbulence.

Earlier, the government announced a series of anti-inflation measures that mainly focus on freezing fees of electricity, gas and other public services during the first half. It also called for colleges to refrain from raising their tuitions this year to ease financial burden on parents, while beefing up market monitoring on any irregular price hikes.

"We will place our top priority in economic policies on price stabilization during the first half of this year and respond (to market developments) in a comprehensive way," the finance ministry said in a press release jointly with other eight government agencies.

"The government will manage its macroeconomic policy in a flexible manner, keeping prices under control while taking into account not just economic but also job market conditions. To this end, we will come up with an appropriate policy mix through close coordination with other relevant agencies," it added.

Those measures are aimed at mitigating concerns that unusually high food prices and rising costs of importing oil, grains and other raw materials could drive up inflationary pressure and eventually undercut the momentum of the nation's economic recovery.

Last year, South Korea's consumer prices grew 2.9 percent but fresh food prices spiked 21.3 percent from the previous year, squeezing the livelihood of low-income people already hit hard by the global economic downturn.

Government agencies rushed to stabilize prices even before the start of this year.

In its 2011 economy-management plan unveiled late last year, the finance ministry announced that its top priority is not only to sustain the economic recovery and create more jobs but also to tackle inflationary pressure.

The drive got more traction especially after President Lee Myung-bak declared a "war" on inflation last week, pledging to do his best to keep growth from hurting stability. He also promised to keep price hikes around 3 percent this year.

His remarks prompted other government agencies to join hands. The Fair Trade Commission, the nation's corporate watchdog, recently reorganized itself in a way to focus more on price rigging and improper market practices that they believe could drive up consumer prices.

In a surprise move on Thursday, the Bank of Korea raised its key interest by a quarter percentage point, highlighting the consensus between the government and the central bank over the growing concerns over inflation.

"Amid rising demand-pull inflationary pressure, the country's consumer prices will be under mounting upward pressure from the supply side like gains in prices of raw materials and agricultural products," the BOK said in a statement.

Experts welcomed the government-led anti-inflation measures, saying that it is time to focus on checking prices left unattended in the process of making efforts to revive the economy from the global downturn.

They, however, cautioned about long-term impact as prices here are more affected by external factors than internal ones such as price-control measures, given the nation's heavy reliance on imports of crude oil and other raw materials.

"Albeit belated, it is the right decision to tackle inflationary pressure. It would help stabilize prices to some extent in the short period of time by letting the market know the government's strong will," Na Jung-hyuk, an economist at Daishin Securities Co.

"But its impact would be limited given that the nation is faced with uncontrollable factors such as higher oil and raw material prices we have to import," he noted.

Officials expect that its latest anti-inflation measures will have positive impact by sending a strong signal to the market that the government will take the price issue seriously and that it will stay firm against any irregular price hikes down the road.

"The core of the measures that we announced is that we will put our top priority on price stability in carrying out our macroeconomic measures," said Yoon Jong-won, head of the finance ministry's economic policy bureau. "I believe that the government's commitment will likely be reflected in market sentiment over inflation."


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