Korea needs to boost market competition further in order to fight high inflation, the biggest headache for the economy, the top economic policymaker said Monday.
The remarks by Finance Minister Bahk Jae-wan come as South Korea is struggling with high inflation. The country’s consumer prices surged 4.1 percent on-year in May, hovering above the 4 percent level for five months running and well above the government’s target of 3 percent.
“The country is faced with downward rigidity in consumer prices, which is being exacerbated by both supply and demand-related pressures,” the minister said in a meeting of business leaders.
Compared to countries like the United States where consumer prices go up and down, prices in South Korea rarely come down after they rise due to downward rigidity, said Bahk, who took office early this month.
“This is because of the monopoly and oligopoly nature of the local market controlled by a handful of big companies, and desire to seek excessive profits,” the minister said.
Local companies have been criticized for using gains in international raw materials, energy and grain prices to mark up prices of products they make but for being slow to lower prices if commodity prices fall. Rise in demand due to economic growth has also contributed to the price hikes coming into this year.
“To enhance market competition, efforts will be made to make it easier for new companies to enter businesses currently controlled by a few companies, disclose corporate information and ferret out unfair corporate activities,” Bahk stressed.
The official said Seoul does not want to engage in “arm twisting” to get companies to lower prices and is exploring “market-friendly” approaches to cope with downward rigidity.
The finance minister, meanwhile, predicted that exports will continue to do well in the future, which can help create more jobs and improve income. “The economy should do well, with consumer price gains likely to slow down in the second half,” he said.
Asia’s fourth-largest economy grew 6.2 percent last year with Seoul aiming to reach growth of 5 percent in 2011, although the Bank of Korea expects growth numbers to hover around 4.5 percent.