금융시장
Inflation Risk (3) : Spread of Inflation Risk and Implications for the Korean Economy
2011-03-09LEE, Seung-Hun
목차
요약
Recent inflation was directly attributable to supply-side factors arising from overseas.
● Consumer price stood at 4.1% in January, affected by rising international prices of raw materials and agricultural products at home and abroad due to extreme weather events, and went up further to 4.5% in February.
Supply-side pressure is highly likely to set in amid supply and demand imbalance and climate change.
● There can be more frequent supply disruptions due to accelerated climate change, while crop demand has been on the rise, driven by higher living standards in emerging countries and wide use of fuel crops.
● Moreover, commodity prices are likely to become more volatile, with growing speculative demand amid extended financial easing around the world and geopolitical risks arising in the Middle East.
Since the global price stabilization regime broke down, inflation risks on the side of demand and market sentiment may go up further.
● The global price stabilization regime has failed after the financial crisis, owing to weaker trust in monetary policy, reflation strategy taken by advanced countries, and concerns for potential China-flation.
● In addition, with a widening inflationary gap in the domestic economy, Korea is expected to witness higher demand-side inflationary pressure in 2011.
● Investors should take heed of whether a series of factors including unstable supply of raw materials, change in the global inflation regime, and demand-side inflationary pressure at home will fuel inflation sentiment and lead to higher inflationary pressure.
It is estimated that 1% hike in consumer price leads to 0.48%p decrease in GDP and 0.19%p increase in interest rate.
● 1% growth in consumer price(QoQ) results in 0.48%p reduction in GDP (-0.24%p in consumption and -0.51%p in investment).
● 1% increase in consumer price drives up the interest rate for 3-year government bond by not more than 0.19%p. But the figure went down by 0.24%p, affected by economic slowdown since the 3rd quarter, and inflationary shocks rendered price variables more volatile.
Taking heed of negative implications of inflationary risk, the government needs to consider multi-layered policy measures.
● If the current trend continues, it may have significant negative implications on the domestic economy such as growing volatility of the financial market, as well as turn local business conditions to be more likely to slow down.
● It is recommended that the government should steadily take macro-level policies step by step to prevent inflationary risk from spreading spurred by demand-side factors and inflationary sentiment, along with micro-measures to fend off risks from unstable supply of raw materials.
● Furthermore, considering the burden from sudden interest rate hike, there should be appropriate foreign exchange policies committed to addressing external inflationary pressure concerning crop and oil prices in particular.
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