Inflation Update

It’s a new year – but Pyongyang isn’t showing any signs of substantive change.

Although public statements from Kim Jong-un call for peace, reports of a possible nuclear weapons test and rocket launches neutralize any possible political changes on the peninsula in the near future.

More critical than inter-Korean relations, economic conditions in the country have not changed either.

One aspect of the North Korean economy to keep an eye on is inflation:

According to information compiled by the DailyNK, rice prices in Pyongyang was 6700 North Korean Wons (KPW) this month, rising KPW 300 from December, while prices in Sinuiju reached an all-time high of KPW 7000. One begins to get a sense of North Korea’s inflation when comparing these figures with prices a year ago – in January 2012, rice prices in the capital was at KPW 3200 and KPW 3300 in Sinuiju. That comes out to 109% rise in the cost of rice in Pyongyang and a 112% increase in Sinuiju.

DailyNK collects data from three cities that handle relatively large amounts of foreign currency – Pyongyang and two cities that border China, Sinuiju and Hyesan. These cities’ privileged position may conceal conditions in other parts of the country where services are poorer and money is not as widely available.

Since information on the people’s disposable income in these cities are unavailable, the effect of these changes on the real income of the people cannot be accurately assessed. Nonetheless, inflation constitutes a key indicator of macroeconomic stability. When markets experience inflation, people further away from the sources of currency lose purchasing power – in North Korea, these people tend to be those who are most vulnerable to malnutrition and starvation.

Recently, Marcus Noland on his “North Korea: Witness to Transformation” further confirmed the prevalence of inflation in North Korea by studying the prices of commemorative stamps celebrating North Korea’s rocket program over time.

If one assumes that the 120 won stamp was issued in July 2009 immediately following the July 4 launch and the 50 won stamp was issued last month, then over that interval the cost of mailing a letter rose at a rate of approximately 200 percent per year. Such a magnitude would be broadly consistent with previous estimates of post-currency reform inflation based on the prices of rice, corn, and foreign exchange.

The only reassuring sign is that between December 2009 and November 2011, the price of rice increased 131% per annum, which is much higher than what North Koreans experienced in 2012 (109% in Pyongyang, 112% in Sinuiju).

So perhaps this is a positive sign – but considering how North Korea was recovering from the consequences of the devastating currency reform during those years (and arguably still is today), the comparison needs to be more carefully analyzed.

Overall, the year is off to a not-so-terrible start with news of economic growth and report from World Food Programme and the UN Food and Agriculture Organisation that rice and corn production increased 11% and 10% respectively.

We will monitor vigilantly.

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About Yong Kwon

Analyst of international relations, writer of history, observer of North Korea's food and monetary policies, and Korea blogger for the Diplomat
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