South Korea unveils steps aimed at suppressing inflation quickly
SOUTH Korea said it will seek to slow the pace of inflation closer to the central bank’s target range within the first half of this year, laying out a series of steps to suppress price pressure that has weighed on the economy.
The government plans to freeze public utility charges, bolster monitoring of potential price rigging and make it mandatory for businesses to disclose if they are reducing packaged volumes of their products during the first six months of 2024, according to a statement on Thursday from the Finance Ministry. The government will also provide about 11 trillion won (S$11.2 billion) in support for energy vouchers, food discounts and other programmes that could help lower consumer prices, it said.
The government’s pledge for an “all-out” campaign against inflation comes as President Yoon Suk-yeol points to prices, energy and interest rates as pain points for South Korean households. His party is gearing up for parliamentary elections in April that will have a bearing on his administration’s effectiveness during the remainder of his term until 2027.
Consumer prices rose 3.2 per cent from a year earlier last month, moderating slightly from November. While the pace slowed for a second month, Bank of Korea governor Rhee Chang-yong warned the “last mile” of the inflation fight could be harder than before. The central bank is keeping the policy rate at 3.5 per cent until it has seen more progress towards its 2 per cent target.
In 2024, the government expects annual inflation to slow to 2.6 per cent from 3.6 per cent last year. Meanwhile, the economy will likely grow 2.2 per cent this year, picking up from 1.4 per cent last year, and the current account surplus is forecast to increase to US$50 billion from US$31 billion in the same period, it said. The growth in jobs will likely slow to 230,000 this year from 320,000 last year.
Risks for the economy this year include short-term debt that some South Korean developers are struggling with, according to the government statement. Taeyoung Engineering & Construction asked last month for a rescheduling of its debt, reigniting concerns about the type of asset-backed security that triggered a credit crunch in 2022.
The government will seek to preemptively prevent any potential liquidity crunch among developers to ensure a soft landing of the construction industry, it said. Separately, South Korea said it seeks to bring the ratio of household debt to gross domestic product to under 100 per cent by 2027, compared with 101.7 per cent as at mid-2023. BLOOMBERG
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