Korea badly needs inflation fighter

Good and bad news coexists in the Korean economy. The good news is the high-flying stock index, record corporate earnings and record exports. The bad news is the surging inflation and polarization of the economy.
Listed companies posted record earnings, with the KOSPI rising on the back of record first-quarter exports. The rosy macroeconomic data could not conceal the dark side of the economy.
Producer inflation has hit a 28-month high of 7.3 percent. For the last nine consecutive months, inflation has risen. Consumer prices shot to 4.7 percent in the first quarter, well above the government's target of 3 percent. Inflation is widespread and contagious. The soaring inflation may undo what the Lee Myung-bak administration has so far achieved, at least economically.
More dangerous than the inflation data is the inflationary psychology. Consumers expect inflation to rise further in the days to come and this way of thinking feeds itself again into hiking inflation further.
The current economic team has an image problem.
Strategy-Finance Minister Yoon Jeung-hyun seems to be sitting on the fence without sending a clear anti-inflation message to the market. Is he either a growth advocate or an inflation fighter?
Bank of Korea Governor Kim Choong-soo is called a Monday morning quarterback. He has failed to take preemptive steps to curb inflation.
Knowledge-Economic Minister Choi Joong-kyung does not seem to understand the market as his only tool is twisting the arms of producers, including oil refiners. Trade Commission head Kim Dong-soo abuses the commission for pursuing a Sisyphean task of controlling price hikes.
The government may be in a dilemma. A hike in interest rate will curb inflation, but may risk triggering a U.S.-like subprime crisis.
Any attempt to stimulate the property market may help builders, and ease the plight of lenders to the construction sector and curb home rental prices. This would further fuel inflation and increase household debt. Policymakers need the right policy mix of stabilizing inflation without reducing exports and raising the jobless rate.
The less painful policy option is a stability-first economic policy through a strong currency policy and a gradual hike in interest rates.
The governing party may find it politically difficult to scrap its current growth-first economic policy ahead of the crucial National Assembly and presidential elections next year.
In these uncertain times, the economic team needs to play an anchor role that sets the economy on a stability-oriented program. They need proactive communication with the people. Policymakers should resist any attempts to politicize economic policies.
President Lee must be unequivocal to the nation that he prioritizes stability over growth.
The current economic team commands little trust from the people as they tinker with 20th-century policy tools in the 21st century.
Korea needs a market-oriented inflation fighter as the top economic policymaker. The current rudder-less economic team is unable to send a clear anti-inflation message to the market. New wine should be put into new bottles.