This year's annual consumer price index was the highest since the Asian financial crisis. It is confirmed that the country faced the worst inflation in 24 years due to the aftereffects of global excess liquidity triggered by the COVID-19 pandemic, Russia's invasion of Ukraine, and the U.S.-China supply chain conflict. Moreover, in the new year, we must simultaneously endure a severe economic recession and high inflation.
The Consumer Price Index (CPI) this year announced by the National Statistical Office is 5.1%, the highest since it recorded 7.5% in 1998, right after the financial crisis. Although this month's CPI fell from its peak in June, it passed the 5% mark for the eighth consecutive month, and the Bank of Korea expected this trend to continue until early next year. In particular, the price burden felt by ordinary people will be more severe than the inflation rate, as prices of food and processed food do not easily fall once they rise.
Moreover, many factors will fuel price instability, such as soaring international oil prices and public utility rate hikes that have been suppressed without reflecting the rise in liquefied natural gas (LNG) prices. From the first quarter of next year, a household of four will have to pay an additional 4,000 won per month. It will be the first time that Korea's electricity rates have risen by nearly 10% all at once. Since such an increase is unlikely to resolve KEPCO's deficit issue, additional hikes next year are expected to be inevitable. In addition, the government announced a gas rate hike next spring, and the Seoul Metropolitan Government is planning to raise subway and bus rates in April.
International oil and raw material prices, which have stabilized somewhat, can drive up prices by causing fluctuations at any time, depending on the war situation in Ukraine and changes in China's energy demand following the end of its "zero COVID policy.” The Bank of Korea, which has sharply raised the base interest rate this year, is expected to raise interest rates next year to control unstable inflation. Such rate hikes are necessary because foreign capital outflows must be prevented by toeing the line with further rate hikes implemented by the U.S. Federal Reserve and the European Central Bank.
Consumer prices in the new year are likely to be higher in the first half of the year and lower in the second half. However, since the price has already risen close to the ceiling, even if the degree of increase becomes less steep, the price perceived by the general public will still be high. Global economic contraction, which has begun in earnest, and sluggish domestic demand due to high prices and high interest rates will make the lives of ordinary households more challenging. In the new year, the war against inflation will continue. The government, the Bank of Korea, businesses, and the public should not let their guard down.