[Weekly Review] April Inflation Surges Over 2%... Car Semiconductor Supply 'Emergency'

[Image source=Yonhap News]

[Sejong=Asia Economy Reporter Son Seon-hee] Last month, the inflation rate exceeded 2%, marking the largest increase in 3 years and 8 months. With growing expectations for economic recovery due to the COVID-19 vaccine rollout, concerns are also rising about short-term rapid inflation caused by revenge consumption and other factors. However, the government views this as a temporary phenomenon due to last year's base effect and expects prices to stabilize after the second quarter.

◆April Consumer Prices Up 2.3%... Largest Increase in 3 Years and 8 Months= According to the 'April Consumer Price Trends' released by Statistics Korea on the 4th, the consumer price index last month was 107.39, up 2.3% compared to the same month last year. This is the largest increase since August 2017 (2.5%). The inflation rate, which had been in the 0% range last year, rose to 0.6% in January, 1.1% in February, and 1.5% in March this year, surpassing 2% last month. This is the first time since November 2018 that the inflation rate has exceeded the government's annual inflation stabilization target of 2%.

The rise in prices was driven by food products. Households, already struggling due to COVID-19, have also been hit by rising food costs. Looking at price fluctuations by detailed items, agricultural products rose 17.9%, livestock products 11.3%, causing the overall price of agricultural, livestock, and fishery products to increase by 13.1%. Agricultural products suffered from poor crop yields early in the year, and livestock products saw reduced production due to the impact of AI, while demand increased from dining out and school meals.

Price increases are expected to continue until June. Especially in the second quarter, the inflation rate is likely to exceed the government's target of 2%.

However, as the harvest season for agricultural, livestock, and fishery products approaches and the number of laying hens is expected to return to normal levels by June, the government forecasts a reduction in the inflation rate. International oil prices are also expected to stabilize in the $60 range in the second half of the year. The Ministry of Economy and Finance stated, "We will do our utmost to manage stable prices so that temporary price increases do not spread into excessive inflation expectations."

◆Vehicle Semiconductor 'Supply Emergency'... Government Expands Tax Benefits= Globally, disruptions in the supply of vehicle semiconductors have also impacted domestic automobile production. The government expects this month to be the peak of supply instability and is actively encouraging the use of quarantine exemption measures for vaccinated businesspeople to prevent inconvenience in parts procurement activities.

Along with this, the government is considering expanding tax credits for semiconductor research and development (R&D) and facility investments. Currently, tax credits generally apply at 0-2% for R&D and 1% for facility investments. For new growth and core technologies, R&D credits range from 20-30%, and facility investments 3%, but the industry has complained that these are insufficient compared to the large amounts of capital invested. As the government emphasizes 'breakthrough nurturing,' benefits exceeding the existing tax credit scale are expected to be applied.

Meanwhile, Moon Seung-wook, the newly appointed Minister of Trade, Industry and Energy who passed the parliamentary confirmation process, skipped his inauguration ceremony on the 7th and headed straight to the semiconductor field. This was to listen to the difficulties faced by the semiconductor industry due to supply issues and to prepare countermeasures.

Minister Moon held a meeting with the system semiconductor industry at Silicon Midas in Pangyo, Seongnam, stating, "We will expand financial, tax, and funding support related to semiconductor investments."

◆Four Years of Moon Administration... Asset Gap Widens as Real Estate Prices Soar= As the weekend marks the 4th anniversary of the Moon Jae-in administration, it has been revealed that the asset gap has widened further due to skyrocketing real estate prices.

According to KB Kookmin Bank's Liv Real Estate, the KB Housing Sales Price Composite Index (nationwide, monthly) rose from 95.9 in May 2017 to 114 as of April 2021, an increase of 18.95%. This rise is 2.17 times greater than the 8.74% increase during the Park Geun-hye administration from February 25, 2013, to May 10, 2017. The housing sales price index increase during the Moon administration was also higher than the 13.09% increase during the Lee Myung-bak administration. Narrowing down to the Seoul area, the increase is even more pronounced. During the Moon administration, the Seoul housing sales price composite index jumped by 34.95%, compared to 7.83% under Park Geun-hye and 1.96% under Lee Myung-bak, showing a particularly sharp rise in Seoul housing prices.

Real estate sales prices also surged. Since the start of the Moon administration, the average apartment sales price per 3.3㎡ nationwide rose from 12.55 million KRW to 18.87 million KRW, a 50% increase. Especially in Seoul, where panic buying by the 20s and 30s generation was concentrated last year, prices soared 85%, from 23.22 million KRW to 43.04 million KRW. To purchase a medium-sized apartment of 84㎡ (exclusive area) in Seoul, an average of nearly 1.1 billion KRW is required.