By Tim Seymour
The main gauge of Korean retail inflation surged to 4.5% last month, well above Seoul’s target and revealing that price pressure is alive and well even at the industrial heart of Asia.
On a sequential basis, Korean consumer inflation is now racing along at a rate of 0.8% a month. An interest rate hike next week is quite likely at this point and economists are fretting that it simply will not work.
Part of the problem here is that like many countries, Korea has elected to weaken its currency, the won, while allowing inflation to gain a toehold within the economy as a result.
A surprise interest rate hike last month did very little to remedy the situation, which has left Seoul with both a won that is too strong for comfort and domestic prices that are rising too fast to ignore.
Economists currently think inflation in Korea could hit 5% — far above the 3% target advocated by the country’s president in his pursuit of outright price controls.
The problem, as elsewhere in Asia and throughout the world, is food and fuel. Energy prices surged nearly 13% over the last year and food input costs soared a full 17.7%.
Obviously, the Korean ETF (EWY) is the way to trade the long-term impact of what could truly become a stagflationary environment.
But this is not only Korea’s problem. At this point, the impact of slowing growth and persistent inflation could have a similar effect on the broad pan-Asian fund (GMF).
Conversely, the Asian gold ETF (AGOL) looks more and more interesting as gold-loving Asia sees more and more inflation.