This study investigates the international and domestic supply structures surrounding primary goods, with an objective of determining the implications of such structures for Korea’s future price policy.
The inflation that the Korean economy is currently experiencing stems from the rising prices of primary goods, including crude oil. These rising prices have contributed 16.0 to 28.0 percent of the rise in the prices of other categories of goods from 1965 to 1977. This figure increased to 37.0 percent in 1973 through 1975 due to the oil shocks. The combined inflationary effect of the rising prices of primary goods and of products of export-oriented industries further contribute to price rises at 32.3 to 37.6 percent, peaking at 44.7 percent between 1973 and 1975. As the effect of the rising prices of primary goods can surpass the 40-percent threshold, it is crucial to introduce more effective measures to control and stabilize the prices of primary goods and imported raw materials.
At the microeconomic level, the best way to counterbalance inflation is to set different goals for different industries with distinct supply structures, and develop and enforce both short- and long-term policies. The common characteristics of supply structures surrounding major primary goods, and the recommended control measures, are as follows.
First, the prices of grains and horticultural products tend to drop around the harvest seasons, and gradually increase and remain high until the next harvest season. This pricing pattern can be expressed as inventory supply theory. Second, the production and prices of livestock and fishery products are dependent on the lifespans of the animals being farmed. Controlling the prices of these products will require a more structural approach. Third, being deprived of almost all natural resources, South Korea is forced to rely almost entirely on importing raw materials for manufacturing industries. Fourth, the 25 necessities and commodities whose prices are subject to the government control include agricultural and fishery products and sugar. The remaining products—laundry soaps, synthetic detergents, fluorescent light bulbs, running shoes, toilet paper, etc.—are mostly products produced by small- and medium-sized businesses, active on markets that are relatively active free from competition. The price policy on these products should incorporate natural market mechanisms as much as possible. Fifth, the demand for, and prices of, manufactured goods is largely subject to wide-scale economic conditions. Therefore, the microeconomic and short-term price policy on manufactured goods should be based on an accurate understanding of the changing patterns in their prices.
In order to establish effective price and supply policies on primary goods, the Korean government should evaluate and consider the long-term supply contracts of various industries and countries, the likelihood of developing goods overseas and then importing them, possible plans for international negotiations and treaties on goods, and the possible use of the international futures market.
수급구조와 물가정책(Supply structure and price policy: focusing on primary goods)
|Series Title; No||연구총서|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Macroeconomics|
|Holding||KDI; KDI School|