Policymakers in the government and the Bank of Korea see the environment getting complicated for easing fiscal and monetary policies to help facilitate corporate restructuring.

Recent signs of prices picking up are heightening expectations that the country’s economy may be getting out of the deflationary pressure. But caution is also being raised against the possibility of measures taken to finance corporate restructuring in this circumstance leading to a steep price increase.

Data released by the Bank of Korea last week showed the producer price index stood at 98.60 in April, up from 98.42 in the previous month. The 0.2 percent rise may be far from impressive, but it marked the first on-month increase of the index in 11 months.

The PPI, which gauges changes in prices of goods and services of local producers, serves as a precursor to consumer price movements.

The central bank forecast the consumer price index, which was up 1.0 percent from a month earlier in April, would rise 1.4 percent in the latter half of this year and 2 percent next year.

The recent price increase was mainly attributed to a rise in international oil prices, which seem to have bottomed out in February.

Though cautiously, some economists here see recent price movements as signaling the country’s economy may be stepping out of the shadow of deflation.

“The real economy may be turning around with concerns about oversupply easing,” said Lee Seung-hoon, an analyst at Shinhan Investment Corp.

Retail sales showed a 4.2 percent increase in March, the highest rate in more than seven years, heightening expectations of a recovery in domestic demand.

Policymakers want to see a proper pace of inflation as Korea’s real-term growth has remained stagnant with its growth potential weakening. A moderate inflation could still put a substantial burden on people when growth in employment and wage remain flat.

Other analysts say it may be too early to view recent price movements as signaling the real economy is improving.

Byun Yang-gyu, a researcher at the Korea Economic Research Institute, noted the increase in the producer price index stemmed from higher crude prices rather than a rise in demand.

If the signs of price gains lead to a significant upward curve, policymakers may feel somewhat burdened about pushing to overhaul debt-laden, loss-making companies by using money printed by the central bank.

What may be further complicating efforts to carry forward corporate restructuring on the back of eased monetary and fiscal policies is the heightening possibility of U.S. interest rate hikes.

The minutes of the Federal Reserve’s most recent meeting in late April showed it was inclined to raise rates in June if the economy kept improving.

The release of the minutes last week dimmed the prospect of the BOK further cutting its key interest rate -- held at a record low of 1.5 percent since last June -- in order to support restructuring work and help boost growth. The expectation of the central bank’s move was based on the presumption that the Fed’s additional rate hike following the one in December would not come in the first half of the year.

Some experts are now calling on the BOK to consider raising, not reducing, rates to prevent possible instability in domestic financial and currency markets. The won’s exchange rate rose to 1,191.7 per dollar Thursday, up 9.1 from the previous trading day, before declining slightly to 1,190.2 Friday.

The BOK has been reluctant to accept the demand from the government that it directly inject money into creditor banks to finance their work to restructure companies saddled with heavy debts, particularly in the shipbuilding industry. Instead, the central bank has preferred to lend money to create a bank recapitalization fund.

As the BOK has little room to further cut rates, it is likely to face growing pressure from the government to pump capital into creditor banks. Government policymakers may have an ulterior motive of averting responsibility in pushing the central bank to assume a primary role in corporate restructuring.

However, some economic commentators say, this method may carry lesser burden than fiscal support, which would result in increasing the amount of national debt and downgrading the country’s sovereign rating. The government’s payment guarantee of money to be borrowed by policy lenders from the central bank is also counted into national debt under fiscal rules, they note.

By Kim Kyung-ho (khkim@heraldcorp.com)