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Key Points

The Bank of Korea expects the government's proposed 20 trillion won supplementary budget to have minimal inflationary effects. Governor Rhee Chang-yong emphasized targeted aid over universal cash handouts for economic efficiency. Despite May's 1.9% inflation rate, food and dining costs remain elevated. The BOK will finalize its analysis after July's rate-setting meeting amidst global oil price uncertainties.

Key Points: BOK Chief Rhee Says 20 Trillion Won Budget to Have Limited Inflation Impact

  • BOK projects 0.1% inflation rise from 20 trillion won budget
  • Rhee favors targeted support for vulnerable groups
  • Consumer prices rose 1.9% in May
  • Dining-out costs surged 3.2% year-on-year
3 min read

Supplementary budget expected to have limited impact on inflation: BOK chief

Bank of Korea Governor Rhee Chang-yong states supplementary budget will minimally affect inflation, advocating targeted aid over universal cash handouts.

"I have long believed that a supplementary budget would make a significant contribution to economic growth while having a limited impact on inflation. – Rhee Chang-yong"

Seoul, June 18

The government's additional supplementary budget is expected to have a limited impact on inflation and targeted support, rather than universal aid, would be more efficient, the central bank chief said on Wednesday.

Bank of Korea (BOK) Gov. Rhee Chang-yong made the remarks during a press conference in Seoul to review this year's inflation target, as the government was to unveil a second supplementary budget of around 20 trillion won (US$14.58 billion), following the 13.8 trillion-won package approved by the National Assembly in May.

"I have long believed that a supplementary budget would make a significant contribution to economic growth while having a limited impact on inflation," Rhee said, reports Yonhap news agency.

BOK Deputy Gov. Kim Woong told reporters that a supplementary budget of around 20 trillion won would raise next year's consumer prices by approximately 0.1 percentage point, while its effect on this year's inflation would be minimal.

President Lee Jae Myung has advocated for an expansionary fiscal policy to spur economic growth and improve public livelihoods, which have been dampened by sluggish domestic demand and the aggressive tariff measures introduced by the Donald Trump administration.

According to government and ruling Democratic Party officials, the proposed supplementary budget will include universal cash payments to all citizens, along with additional aid for low-income and vulnerable groups.

"In terms of fiscal efficiency, targeted support is more effective than universal support in assisting vulnerable groups, such as self-employed and small business owners," Rhee said.

The potential impact of the extra budget on inflation and economic growth will be assessed once the government releases the detailed plan, with the BOK to provide its official analysis following the rate-setting meeting in July, he added.

Speaking of the overall inflation level, the governor said that perceived inflation and the cost of living have remained elevated since the COVID-19 pandemic, though prices have remained stable in the first half of this year.

"Looking ahead, uncertainties remain high due to factors such as consumer price inflation and surging global oil prices caused by geopolitical instability in the Middle East. It is essential to closely monitor the interaction of various inflation drivers," he added.

Consumer prices rose 1.9 percent in May from a year earlier, marking the first time in five months that inflation has fallen below the 2 percent threshold.

But the increase in processed food prices remained high, staying in the 4 percent range for the second consecutive month. Dining-out prices also rose 3.2 percent on-year in May.

In the wake of mounting burdens on the people, President Lee last week expressed concerns over recent price hikes in everyday goods, such as instant noodles, and instructed officials to devise measures to curb inflation.

The BOK forecast consumer prices to increase by 1.9 percent this year and 1.8 percent in 2026.

- IANS

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Reader Comments

Here are 5 diverse Indian perspective comments on the article about South Korea's supplementary budget and inflation:
R
Rahul K.
Interesting to see Korea tackling inflation with targeted measures. In India, we've seen how universal schemes like free ration distribution can help during crises, but targeted subsidies for farmers and MSMEs work better long-term. Hope they find the right balance! 🇮🇳
P
Priya M.
The 0.1% inflation impact seems optimistic. When India announced COVID relief packages, the RBI had to work extra hard to manage liquidity. Hope Korea's central bank is prepared with contingency plans. Their inflation at 1.9% looks dreamy compared to our numbers though! 😅
A
Arjun S.
Universal cash payments sound good politically but create long-term fiscal stress. India learned this with farm loan waivers. Korea should focus on job creation like our PLI schemes. Manufacturing boost gives sustainable growth without inflation spikes.
S
Sunita R.
The dining-out price increase (3.2%) shows how service sector inflation hits common people hardest. Same story in India - chai-samosa prices doubled in 5 years while salaries didn't! Maybe Korea can study our UPI system to reduce transaction costs for small businesses.
V
Vikram J.
While the article focuses on Korea, it's a reminder how interconnected global economies are. Middle East instability affects oil prices worldwide, and that impacts inflation in both Seoul and Mumbai. We need more international cooperation on economic stability.

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