S.Korean Economy Suffers High Consumer and Oil Prices and Won Appreciation

Consumer prices in March marked the largest monthly gain over the past year.

Also, oil prices climbed as the Organization for the Petroleum Exporting Countries (OPEC) has cut its crude oil production by one million barrels a day starting from April 1. Additionally, the Korean won rose sharply against the U.S. dollar. Therefore, the phenomenon of “the new three highs” in consumer price, oil price, and the currency has become prevalent.

It is forecasted that “the new three highs” phenomenon will cripple the turnaround of the Korean economy, which is heavily relying on exports and having sluggish consumption and investment.

According to the National Statistical Office on April 1, the consumer price index in March rose 1.0 percent higher than a month ago, and it has increased for the fourth consecutive month since December 2003. The increasing rate for this month recorded the highest leap since March 2003’s rise of 1.2 percent. Compared to the previous year, the increasing rate in March rose to 3.1 percent, keeping a minimum of a three percent rise over three consecutive months of the previous year (January, February, March 2003).

The price for agricultural and livestock goods increased 2.7 percent compared to the previous month, and the cost of personal service climbed 1.8 percent. Particularly, the educational cost, especially the tuition fee, was the main cause for the rising consumer price with 10.9 percent increase for the national and public college, 7.1 percent for private college, and 4.5 percent for secondary schools each. On Thursday, the Korean won continued to stay strong against the U.S. dollar.

Affected by the appreciation of Japanese currency, the Korean won rose about 5.4 won against the U.S. dollar and ended at 1141.2 won against the dollar, hitting a three years and four months low.

As the threat over terrorism is heightened with the depreciation of dollars, gold, the replacing asset, is also showing rapid price hike.

On March 31, the New York Mercantile Exchange reported that COMEX June gold jumped $5.50 (1.3 percent) to settle at $428.30 an ounce, hitting the highest level in 15 years and four months.

According to the website indicating gold price in the Seoul region (www.goldinfo.co.kr), the retail sale price on April 1 jumped 300 won and exchanged at 66,500 won for each 3.75g.