Put top priority on reining soaring prices

Policymakers cannot do anything about external factors like oil prices and exchange rate, but they must delicately navigate so that election results do not stoke expectations of an inflationary run.

What is upsetting the applecart for grocery shoppers these days are actually apples. The consumer price index in March rose 3.1 percent from a year ago due to a spike in the prices of apples and other fruits, staying above 3 percent for the second straight month after easing 2.8 percent in January. The jump in fruit prices (apples up 88.2 percent and pears 87.8 percent) was the primary cause.

Escalating grocery prices naturally became the top campaign recipe. After the People Power Party (PPP) launched its campaign at Garak Market in Seoul, the Democratic Party (DP) initiated its “green onion” challenge in parody of President Yoon Suk Yeol’s embarrassing remark about green onion prices.

The government also went into action as everyday inflation has become a barometer for public sentiment. It doled out 150 billion won ($111 million) to subsidize and stabilize the prices of 21 commodities, including fruit and vegetables. President Yoon vowed to inject funds in an “unlimited” scope and period to stabilize farm, livestock, and fisheries prices until people “feel” prices have eased.

Deputy Prime Minister for Economy Choi Sang-mok estimated inflation to peak in March and stabilize at a quicker pace in the second half. But there are too many factors that can upset his optimism. International oil prices that helped soften inflation are rising. JPMorgan Chase projected Brent crude could soar to $100 in September if Russia and OPEC Plus go on with output cuts.

The strong greenback is another pressure. As the U.S. economy maintains resilience, the Federal Reserve may not shift its monetary policy direction. The U.S. dollar has been rising globally, particularly against the Korean won. A strong dollar that weakens the won’s value makes import costs more expensive and fans inflationary pressure due to Korea’s high reliance on imports.

The rush of populist platforms from rivalling candidates ahead of the April 10 parliamentary elections also makes it difficult to tame inflation.

High inflation dampens consumer spending and hardens livelihoods. Sticky inflation interferes with dialing down monetary tightening. The discomfort of living with high inflation and interest rates amid the sluggish economy can lengthen.

Bank of Korea Governor Rhee Chang-yong warned of a bumpy path to stable prices as they can easily bounce back. Policymakers cannot do anything about external factors like oil prices and exchange rate, but they must delicately navigate so that election results do not stoke expectations of an inflationary run. Without stable prices, the momentum from strong exports could be limited in bolstering consumer sentiment and domestic demand.