{"id":2196845,"date":"2022-06-15T16:58:35","date_gmt":"2022-06-15T07:58:35","guid":{"rendered":"https:\/\/www.nknews.org\/pro\/?p=2196845"},"modified":"2023-04-05T16:12:16","modified_gmt":"2023-04-05T07:12:16","slug":"why-inflation-is-finally-spiking-in-south-korea-months-after-the-us","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2022\/06\/why-inflation-is-finally-spiking-in-south-korea-months-after-the-us\/","title":{"rendered":"Why inflation is finally spiking in South Korea, months after the US"},"content":{"rendered":"
South Korean inflation has been far lower than the U.S. for much of the past 18 months, but it\u2019s now starting to catch up, hitting 5.4% in the month of May.\u00a0<\/span><\/p>\n While inflation in the U.S. has <\/span>resulted<\/span><\/a> from a post-pandemic uptick in demand, South Korea (as well as the Eurozone) is struggling with inflation due to external supply chain issues and price increases connected to the war in Ukraine.<\/span><\/p>\n Less excess savings and pent-up demand in South Korea has resulted in a far slower increase in inflation than in the U.S. But now inflation is spiking all the same, increasing the likelihood of recession on the horizon.<\/span><\/p>\n MONEY SUPPLY AND MONETARY OVERHANG<\/b><\/p>\n As the economist Milton Friedman famously <\/span>quipped<\/span><\/a>, \u201cinflation is always everywhere a monetary phenomenon.\u201d Since the start of the pandemic, the supply of money minted by the world\u2019s major central banks has risen dramatically.\u00a0<\/span><\/p>\n The rise was most dramatic in the U.S., where the money supply increased by more than four times. But <\/span>data<\/span><\/a> from the Organization for Economic Cooperation and Development <\/span>(<\/span>OECD) indicates that even in the Euro area and South Korea, the overall supply of money increased considerably.\u00a0<\/span><\/p>\n The money supply similarly grew after the 2008 financial crisis as a result of <\/span>quantitative easing<\/span><\/a> (QE). But while QE increased the size of money in financial markets and <\/span>bank reserves<\/span><\/a>, it did not directly increase the size of household savings and consumption.\u00a0<\/span><\/p>\n This time around, central bank expansion of the monetary base through the purchase of government debt and other debt instruments (like mortgage-backed securities) also enabled a large fiscal expansion.\u00a0<\/span><\/p>\n Consequently, the U.S. ran a fiscal deficit worth over 15% of gross domestic product (GDP) in 2020 and 12.4% in <\/span>2021<\/span><\/a>, an abnormally large amount. The equivalent figures were 7.1% and 5.1% for the <\/span>Euro Area<\/span><\/a> and just 5.8% and 4.4% for <\/span>South Korea<\/span><\/a> (excluding surpluses due to welfare programs like pensions).<\/span><\/p>\n