[한국 경제 미리보기] Inflation, industry, and employment prospects as a leading indicator

The price, industry, and employment trends, which are counted as the three major indicators of the Korean economy, are continuing a tight line. Inflation predicted an upward trend until the second half of this year, and there is a lot of anxiety about a ‘sparkle rebound’ in the industry and employment sectors showing a recovery trend.

In particular, the prevailing opinion is that it will take some time for the risks to stabilize since most of them are caused by external factors.

As our economy suffers from the worst inflation, prices are likely to rise further for a while.

First of all, the expected inflation rate, which shows the expected rate of consumer price increase for the next one year, is close to 4%. According to the Bank of Korea on the 4th, the expected inflation rate in June was 3.9%, up 0.6 percentage points from May (3.3%).

This is the highest level in 10 years and 2 months since April 2012 (3.9%). The 0.6 percentage point increase is also the highest record since related statistics began in 2008.

External factors such as rise in international food prices and disruptions in supply chains had a major impact, and the high cost of living and perceived prices of personal services and dining also acted as a factor in raising expected inflation.

As industrial goods and services rise, producer prices are also maintaining a high level. The producer price index in May was 119.24, up 0.5% from the previous month (118.59). This is the 5th consecutive month of growth.

Producer price refers to the wholesale price of goods and services supplied by producers to the market. Generally, when the producer price index rises, the consumer price index tends to rise with a time lag of 1-2 months, but it has been on the rise since January of this year.

In connection with the producer index, the consumer price index rose to 3% for five consecutive months from October last year to February this year, and then soared to 4.1% in March, 4.8% in April, and 5.4% in May. The prevailing view is that the consumer price index for June, which will be announced on the 5th, will exceed 6%.

This upward trend is likely to continue throughout the summer. In July and August, when electricity and gas rates rise and demand for Chuseok holiday items is concentrated, the inflation rate may increase even higher.

Considering the base effect, the inflation rate may moderate in the second half of the year, but it is difficult to predict due to a number of inflation factors such as a rise in public utilities, a prolonged war in Russia and Ukraine, a high expected inflation rate, and pressure to increase wages.

The government expects the high inflation rate to continue until at least August.

Professor Sung Tae-yoon of Yonsei University said, “Inflationary pressures such as energy prices are still high, so it is difficult to predict a high inflation.

Indicators predicting economic trends in the near future turned upward for the first time in 11 months. However, it is too early to judge whether the economic trend has turned to recovery.

According to the ‘May Industrial Activity Trend’ announced by the National Statistical Office, the cyclical change in the leading composite index was 99.4, up 0.1 point from the previous month. This is the first rebound since June last year.

Usually, when the leading index falls for more than six months, it is interpreted as a sign of a turnaround in the economic cycle, so the rebound for the first time in more than a year raises expectations that the economy has reached a trough.

However, considering that the economy is on a recovery track, there are still potential factors for anxiety. The all industrial production index in May improved from April, when production, investment and consumption had a ‘triple decrease’, but consumption declined for three consecutive months and external conditions were not favorable.

Uncertainties in the economy remain, as external variables such as the prolonged Ukraine crisis do not calm down, and the business sentiment of companies worsens for the first time in three months.

Eo Woon-seon, director of economic trend statistics at Statistics Korea, said, “There are upward factors such as lifting quarantine measures and implementing government support policies, but there are also downward factors such as the prolonged Ukraine crisis, austerity monetary policies of major countries, and worsening global financial conditions. There is no choice,” he said.

Despite concerns over the economic crisis, jobs are continuing to recover. However, the outlook for the job market is not bright due to concerns about a decrease in government job effects and concerns about an economic slowdown.

Although the number of employed in manufacturing, which is referred to as a leading indicator of the labor market, is steadily increasing, the increase is only modest, and it is highly likely that the increase in the number of employed persons will slow down in the future.

According to the ‘KOSI Small and Medium Business Trend June Issue’ published by the Small and Medium Business Research Institute (KOSI) on the 29th of last month, the number of employed by SMEs in May was 25.46 million, an increase of 730,000 from the same month of the previous year.

By industry, the largest increase was mainly in the service industry, such as the information and communication industry (12.6%), the professional/science/technical service industry (7.4%), and the health/social welfare service industry (5.1%). On the other hand, employment in the manufacturing industry only increased slightly (1.8%).

This trend can also be confirmed in government statistics.

According to the ‘May Employment Trend’ released by the National Statistical Office, the number of employed people last month was 28,485,000, an increase of 935,000 from a year earlier. As of May, it is the largest increase in 22 years since 2000 (1034,000 people).

However, the number of people employed in the health and social welfare service industry and public administration related to government jobs such as COVID-19 quarantine personnel (277,000) led the increase.

The manufacturing sector also increased by more than 100,000 people (107,000 people) thanks to an increase in exports, but the rate of increase turned downward. The number of manufacturing employment increased by 61,000 in March compared to the previous month, followed by an increase of 36,000 in April and a decrease of 34,000 in last month.

The Ministry of Strategy and Finance said, “The number of employed people in the second half of the year is expected to slow down due to the negative base effect, the disappearance of temporary increase factors due to quarantine and local elections, etc., and the termination of the direct job business.” We need to keep an eye on it as it exists,” he said.