An Era of High Inflation, Oil Prices, and Exchange Rates: Time to Trust the Market

The Korean economy has recently entered what is being called a “triple burden” phase: high inflation, high oil prices, and a high exchange rate. Consumer prices have shown little sign of coming down, while international oil prices remain elevated amid global instability caused by developments in the Middle East and elsewhere. The exchange rate, too, is hovering above 1,500 won per dollar depending on external uncertainties.

Under these circumstances, calls for government intervention are naturally growing louder. Measures such as price controls, fuel tax cuts, expanded subsidies, and vehicle operation restrictions under the five-day or ten-day rotation systems are being discussed, along with even policies such as limiting energy use. But at this point, we should ask one question: can a crisis really be resolved simply because the government controls prices?

Prices are not a “problem,” but a “signal.” In a market economy, prices are not just numbers. They are important information that reflects scarcity and the conditions of supply and demand. In particular, they are a core mechanism for coordinating the behavior of economic actors.

When oil prices rise, consumers reduce energy use, businesses seek innovation to cut costs, and investors shift toward alternative energy. When the exchange rate rises, export competitiveness improves, imports adjust, and rising prices induce changes in consumption patterns.

In this way, prices function as an “adjustment mechanism” through which the economic system in the market finds its own balance. Even so, what happens when the government artificially suppresses prices?

In the short term, the market may appear stable. But in the end, it can only bring about bigger problems: “supply shortages” and “distorted resource allocation.” History also shows that prolonged price-control policies have repeatedly failed.

If energy prices are suppressed, consumption does not decline and supply can only contract. The result is even greater upward pressure on prices. In particular, subsidy policies in a high oil price environment create a double problem: they increase fiscal burdens while weakening incentives to conserve energy. Market intervention under a high exchange rate environment can likewise aggravate instability in the foreign exchange market.

The problem is that the more severe the crisis becomes, the more the government faces pressure to “do something.” But in economic policy, what matters is not the “intensity of action,” but the “accuracy of direction.” What we need now is not “intervention,” but “restoration of function.”

In an economy suffering from the “triple burden” of high inflation, high oil prices, and a high exchange rate, what the government should do is clear. It should not replace market functions, but create the conditions for the market to work properly.

First, it must reexamine excessive regulations and direct controls that distort market price signals. Second, it should improve inefficiencies on the supply side in areas such as energy, logistics, and distribution. Third, fiscal policy should focus on sustainability rather than short-term popularity.

Trusting the market in an economic crisis like the present does not mean “doing nothing.” The temptation of policy always lies in its promise of “immediate effects.” The triple burden of high inflation, high oil prices, and a high exchange rate is certainly not an easy situation.

But the way to resolve it should not be “intervention” that creates yet more distortions. What we truly need now is not an “expansion of government.” It is “trust in market functions,” and “policy restraint” aimed at restoring them.

Sung-no Choi, President, Center for Free Enterprise (CFE)

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Original title: 高물가•高유가•高환율 시대, 시장을 믿어야 할 때다

Author: Sung-no Choi

Date: 2026-03-18

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=28708