Inflation
Inflation is an upsurge in the level of prices of the goods and services in an economy, which leads to a decline in the purchasing power of the currency’s value. It is calculated as the rate of change in prices in a specific period of time. The consumer price index (CPI) is one of the most common indicators for measuring inflation in an economy.
Factors that Impact Inflation Rate
Some of the major factors affecting consumer prices are government policies, money supply, consumer spending, employment levels, high disposable income, and wage levels. Interest rates can also have a significant impact on spending on consumer goods.
Global Inflation
Global inflation is a measure of the average annual rate of growth increase in national prices across all countries. It can be calculated using various methods including simple average, weighted average, and median price change. GlobalData forecasts that the world economy will grow at a slower pace of 3.5% in 2022 following a 5.9% growth in 2021. The global inflation rate is projected to rise in 2022 due to supply chain disruption amid the Ukraine-Russia war.
Consumer Price Inflation in South Korea
The Consumer price inflation in South Korea reached 2.5% in 2021, mainly due to increased government spending and accommodative policies to mitigate the economic repercussions of the COVID-19 crisis. Between 2010-2021, the consumer price inflation rate in South Korea was highest in the year 2011, at 4.03%. South Korea reported a sharp decline in the inflation rate between 2011-2015.
Amid geopolitical turmoil and subdued domestic growth, inflation stood at 1.0% in 2016, according to GlobalData. In 2017 and 2018, inflation was within the central bank’s target range, at 1.9% and 1.5%, respectively. In December 2018, the central bank set an open-ended inflation target of 2.0% for the next two years, unchanged from the previous target, effective from January 2019. Inflation in 2019 reached a low of 0.4% owing to a fall in consumer and corporate demand. According to GlobalData, inflation increased slightly at 0.5% in 2020.
Rising Inflation and Interest Rates:
As a result of rising inflation rates in both developing and advanced economies, central banks have been forced to tighten monetary policy and raise interest rates to keep prices from rising. However, a steady increase in interest rates could cause financial distress in some economies.
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