South Korea jobless rate stays low in sign of economic resilience

SOUTH KOREA’S unemployment rate remained low, suggesting the labour market is holding up in the face of accelerating inflation and rising interest rates.

The jobless rate edged up to 2.8 per cent in May from 2.7 per cent in the prior month, the statistics office said Wednesday (Jun 15). Economists had expected it to hold at 2.7 per cent. The economy added 935,000 positions from a year earlier.

Inflation is a growing headwind for South Korea and has prompted the Bank of Korea to remain open to the idea of a “big-step” rate hike. The central bank has already raised its benchmark 5 times since last summer and is concerned that rising consumer prices may spur increased wage demands and fuel a wage-price spiral in the economy.

Intensifying inflation threatens to erode public confidence in the economy, even as unemployment remains low thanks to support from a series of extra budgets. That fiscal support is now increasingly seen as a factor helping drive price pressures.

Inflation hit 5.4 per cent last month, the highest reading since 2008, and the central bank has warned it will probably remain in that range through July. Finance Minister Choo Kyung-ho has said the government is unlikely to pursue another extra budget unless the virus situation worsens seriously again.

With rising borrowing costs and prices, the economy may lose momentum, potentially hurting the job market. The BOK sees economic growth this year at 2.7 per cent, down from the 3 per cent it previously projected, with inflation coming in at an elevated 4.5 per cent. BLOOMBERG