Supporting the labour market was the South Korean government's main economic preoccupation in 2010, but in 2011 containing inflationary pressures is taking its place as the country's top economic policy priority. Consumer prices rose by 4.1% year on year in January and by 4.5% in February. On a month-on-month basis price inflation averaged 0.9% in the two-month period, compared with a 0.6% rise in December. In addition to rising global food pressures, there are problems with domestic food supplies stemming from the outbreaks of foot and mouth disease and bird flu. Domestic fuel prices climbed by 13.1% year on year in February. Core inflation, which excludes oil and food, was up by 3.1% in the same month, the highest rate since August 2009. All this suggests that inflationary pressures are building and that the odds of the government achieving its stated goal of limiting annual average inflation in 2011 at around 3% are falling. Import prices, a leading indicator of consumer price inflation, surged by 14.1% year on year in January, following a 12.7% jump in December 2010, according to the Bank of Korea (BOK, South Korea's central bank). Import inflation is coming under upward pressure largely owing to higher global oil and food supplies.

Against the backdrop of rising inflation, policymakers are taking on a highly interventionist approach to price stabilisation, with overt pressures applied on purveyors of food, oil and telecommunications services against price increases. Public utilities have had to forego price increases for electricity and city gas. The state-controlled utility companies have long been operating under the government's heavy hand. For many years, it has been a norm for the authorities to set electricity and natural-gas prices below cost, denying profits to state-owned Korea Electric Power and Korea Gas. The government is defending its anti-inflation bullying tactics as smoothing operations, denying undue infringement of market principles. Food companies, oil refiners and telecoms carriers have also been targeted by the government. The country's largest dairy producer, Seoul Dairy, had to cancel plans to increase milk prices within hours of its announcement in February after executives were called in by government officials.

Korea Agro-Fisheries Trade Corporation, a firm that works between the private sector and the Ministry for Food, Agriculture, Forestry and Fisheries to smooth out price fluctuations of primary goods and to promote exports, is working to set up an international grain-trading company in the US as early as May. This company will aim to counter the dominance of multinational grain traders, such as US-based Cargill, and to provide a cushion against grain-price volatility by buying directly from grain farmers instead of via major traders of such goods. South Korea, which is one of the biggest grain importers worldwide, depends almost entirely on a few major grain-producing countries to meet its grain import demand. Following Lee Myung-bak's open complaint about petrol prices "mysteriously" defying gravity, domestic oil refiners are facing regulators' scrutiny into how they mark up their petroleum products. The Ministry of Knowledge Economy has launched a task force that is investigating the pricing of oil products and will prescribe "remedial measures" in the nearby future, with the aim of bringing more competition into the market and streamlining distribution channels. The Korea Communications Commission, which oversees South Korea's telecoms industry, has set up its own task force with the specific aim of cracking down on purported price rigging by telecoms carriers.

The BOK has kept its main policy interest rate, the official cash rate (OCR), at 2.75% at its monetary policy meeting in February, citing uncertainty about the global economic outlook. This measure followed a 25-basis-point rise at the central bank's meeting in January. However, the build up of inflationary pressures in the first two months of 2011-the year-on-year increases were both above the 4% upper threshold for consumer prices that the BOK has set for 2010-12-prompted the central bank to raise the OCR to 3% at its meeting in March. The BOK cited several reasons for the increase, including the robust economic outlook for emerging markets and domestic demand, a tightening domestic labour market, rising global commodity prices and the need to contain inflationary expectations.