Woes Of Agflation

Recently, crop price has been increasing globally including Korea. It¡¯s becoming a big issue since experts are worrying about the global food price hike such as the one in 2008.

The price of agricultural products in Korea increased by 3.6 percent in July, compared to the same month a year ago according to a government survey. Global crop prices such as wheat are also surging as Russia and other major producers of the crops decided to reduce exports due to their poor harvests.

However, the central bank and the finance ministry of Korea expressed different views on the rising global crop prices and its possible impact on the economy. The Ministry of Strategy and Finance (±âȹÀçÁ¤ºÎ) denied the possibility of a rapid consumer price increase such as the one shown between 2007 and 2008. In contrast, the Bank of Korea (BOK) considered the price increase as the possible threat of inflation this year.

Then what does agflation mean? The term is derived from a combination of the words ¡°agriculture¡± and ¡°inflation.¡± It is an increase of the price of food that occurs as a result of increased demand from human consumption and use as an alternative energy resource. It¡¯s very important to control agflation since the price increases are largely related to the consumers¡¯ spending on food.

Interest in alternative energies contributes to agflation. In order to produce biofuel such as ethanol, manufacturers need to use food products such as soybeans and corn. This creates more demand for these products, which causes their prices to increase.

Unfortunately, these price increases spread to other non-fuel related grains such as rice and wheat as consumers switch to less expensive substitutes for consumption. Furthermore, agflation will also affect non-vegetable foods like eggs, meat and dairy products as the price increases for grain will make livestock feed more expensive as well.