South Korea, Asia's fourth-largest economy, is also suffering from a fast-spreading omikron epidemic and rising commodity prices, slowing the pace of economic recovery.


Rising inflationary pressures


South Korea's consumer price index (CPI) rose 4.8% in April from a year earlier, the highest level since the 2008 global financial crisis, the National Statistical Office said Friday. April's CPI was up from 4.1 percent in March and 4.4 percent economists had forecast. Prices of agricultural and sideline products rose 1.9 percent. Hydropower and coal prices rose by 6.8%, with electricity prices rising by 11% in particular. The core consumer price index excluding agricultural and oil products rose 3.6 percent, the highest since December 2011 (3.6 percent).


The high consumer price index in April was driven by rising prices of industrial products such as oil and personal services. Since the outbreak of the Conflict between Russia and Ukraine, energy prices have risen and supply chain bottlenecks have continued, increasing demand from all sides.


Limited room for rate hikes

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The bank of Korea (BOK) is expected to raise interest rates again as the annual growth rate of the consumer price index (CPI) is likely to exceed 4 per cent. The Bank of Korea has raised interest rates four times since August 2021, becoming the first in the world to exit monetary easing. The Bank of Korea is expected to raise interest rates this month to tackle soaring inflation.


Rhee Changyong, the bank of Korea's newly appointed governor, said recently that the central bank should continue on the path of monetary policy normalization because inflation remains a more pressing concern than slowing growth. Mr Rhee said he favoured raising interest rates unless the economic outlook was threatened. On April 14, before Rhee took office, the Bank of Korea raised its benchmark interest rate to 1.5%, its fourth increase since last summer.


The media is also paying attention to the possibility that the annual growth rate of Korea s consumer price index (CPI) will exceed 4 percent. If inflation is not controlled effectively, The Korean people will choose to reduce consumption and businesses will reduce employment, production and investment, and the Korean economy may lose vitality or even fall into recession, according to South Korean media. Indeed, South Korea's economy slowed in the first quarter, growing 0.7 per cent quarter-on-quarter and 3.1 per cent year-on-year. In the fourth quarter of last year, the economy grew 1.2 per cent from the previous quarter.


Trade deficit widens

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Exports rose 12.6% in April from a year earlier to $57.69 billion, the slowest growth since February 2021, according to the Ministry of Trade, Industry and Energy. On the import side, South Korea's imports in April rose 18.6 percent from a year earlier to $60.35 billion, driven by surging global energy and raw material prices. Of this, imports of crude oil, natural gas and coal amounted to 14.81 billion DOLLARS, nearly double the amount of the previous year. That widened South Korea's trade deficit to $2.66bn in April from $115m in March. Korea s trade balance has been in deficit for two consecutive months since March this year.


It is noteworthy that the recent depreciation of the yen has also had an impact on some Korean industries. Japan is a strong competitor of South Korea in the global market, and many of South Korea's products compete with Japan in the Asian market. As the yen depreciates, the price competitiveness of Japanese products will increase, which could weaken Korean exports.


Regional economic cooperation is one of the most favorable factors for Korean exports. The Regional Comprehensive Economic Partnership (RCEP), which officially took effect in South Korea on February 1, has played a significant role in boosting South Korea's exports. Korea s exports to China and ASEAN countries hit record highs in March. South Korean experts believe that South Korea should actively participate in various forms of free trade agreements such as RCEP when international trade frictions are likely to intensify.


It will be difficult for The Korean economy to recover due to increasing pressure on global supply chains, rising raw material prices and trade imbalance.