Market capital exploded up to 42 trillion in a month… Strong inflation pressure

Market capital increased by 42 trillion won within a month, recording the largest increase in history. It is interpreted that this is because the demand for funds in the private sector surged amid growing economic uncertainty due to Corona 19.

Experts are concerned that the price of shopping carts jumps from day to day, and the rate of money being released will accelerate and the pressure on perceived prices may increase.

According to the data released by the Bank of Korea on the 18th of January 2021, the wide-range currency (based on M2 and average balance) recorded 3233 trillion won, an increase of 41 trillion won (1.3%) from the previous month. In terms of the increase, it is the highest since the statistics were organized in December 2001. Compared to the same period last year, M2 increased by 10.1%.

M1, including cash, rose 2.1% from the previous month to KRW 1185 trillion. Compared to the previous year, it is a whopping 25.2% increase.

M1 is money that can be used immediately, such as cash, deposit on demand, and occasional deposit and withdrawal, and M2 is the sum of money that must be buried for 1 to 2 years, such as regular deposits less than 2 years in M1. Businesses, households, and self-employed alike have increased the number of economic actors who need money, and market liquidity has increased at the same time.

The BOK said, “The inflow of funds from households and non-profit organizations has increased.”

In particular, it is analyzed that the preference for short-term funds among commercial funds has increased. The share of M1 in M2 was 36.6% (as of January), the highest since December 2001 when related statistics were made. The increase in M1 among M2 means that the preference for cash that can be used immediately is higher than the money that has to be tied up for a certain period of time.

There are concerns that the market capital will grow like a snowball and the pressure to increase inflation may increase. According to the National Statistical Office, consumer prices rose 1.1% over the previous year, showing the highest rate in one year. Import prices rose 3.8% in February as they faced the pressure of rising international raw material prices, showing an uptrend for the third month. Recently, the BOK raised its inflation forecast from 1.0% to 1.3% this year due to increased inflationary pressure.

“We are in danger of exploding the high prices due to the increase in floating funds in the market,” said Pilsang Lee, a special professor at the Department of Economics at Seoul National University. .

The problem is that the monetary easing trend continues in major countries such as the United States, and Korea’s interest rate policy is stuck.

The U.S. Federal Reserve System announced on the 18th (Korean time) that it would freeze the standard interest rate at the current 0.00~0.25% level after completing the regular meeting of the Federal Open Market Committee (FOMC). The Fed predicted that it will maintain the zero interest rate level through 2023 through a dot chart showing the future interest rate outlook.

Professor Lee pointed out that “the BOK and the government need to mobilize policy measures to change the flow of money.”

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