NABO Economic Trends (No. 30)

Published on June 29, 2022
Published by Population & Strategy Analysis Division

■ Economic Trends
   Uncertainties in the Korean economy are exacerbated due to high inflation rates and the strengthening of monetary tightening at home and abroad. In May, the consumer price index rose by 5.4% YoY due to the continued upward trend of industrial products and personal service prices. With brewing concerns about inflation and interest rates, the Composite Consumer Sentiment Index (CCSI) shifted slightly downward for the first time in three months. In the domestic financial market, interest rates and exchange rates continued to rise due to monetary tightening measures and inflationary pressure, etc. Although exports in May achieved the highest performance for the given month thanks to increased exports of semiconductors, chemicals, steel, etc., imports were higher due to a surge in raw material prices and increased imports of intermediate goods, recording a trade deficit for two consecutive months. Production in April increased YoY in both the manufacturing and service industries, and the total number of employed persons increased by 935,000 in May, continuing on a solid recovery path. The volatility rate of the nationwide housing sales price index in May increased by a smaller gap MoM due to weakened home purchasing sentiment, and the change in the volatility rate of the jeonse/monthly rent price index was similar MoM.

■ Pending Economic Issue: 「The Impact of the US Federal Reserve’s Giant Step on the Korean Economy Examined」
   Recently, the US Federal Reserve (Fed) has raised its benchmark interest rates by 0.75%p for the first time since 1994 in an effort to tamp down rising inflation. The Fed’s steep rate hike is expected to increase capital outflows and inflationary pressures, thereby strengthening the Bank of Korea's base rate hike stance. This is highly likely to lead to a negative impact on the Korean economy stemming from reduced household consumption and declined corporate investment by way of rising market interest rates and falling asset prices. For this reason, countermeasures to minimize the adverse effects of increased interest rates on the real economy need to be reviewed, while ascertaining potential financial risks that may occur from narrowing or reversing the interest rate gap between Korea and the US as well.