The Korean Economic Forum
Understanding the Sources of High Inflation in Korea after COVID-19: Evidence from Disaggregate CPI Inflation Rates by Expenditure Category
Dukpa Kim (Korea University) and Yunjong Eo (Korea University)Year 2022Vol. 15No. 2
Inflation has surged dramatically after COVID-19 due to domestic and foreign supply and demand shocks that occurred throughout the period of economic recovery. Based on Stock and Watson’s (2016) multivariate unobserved components model, we estimate trend inflation using disaggregate consumer price indices by expenditure category and investigate the sources of the recent inflation hike. Our empirical findings show that the sub-categories of transportation, restaurants/hotels, food/non-alcoholic beverages sectors, which are directly tied to global inflation pressure, have been primarily responsible for the recent increase in CPI trend inflation. As of the first quarter of 2022, the specific sectoral high inflation has not yet spread to other sectors, but survey-based inflation expectations have recently risen along with our estimate of trend inflation. We also discuss the policy implications of our findings about stabilizing inflation.