2%-range inflation fails to spur consumers to open wallets
Consumer prices rose 2.8 percent in January, the government announced on Monday, marking the first time in six months that inflation fell to the 2 percent range.
However, consumers in Korea are keeping their wallets shut tight, leading to pessimistic outlooks of a recovery in private consumption, which, along with exports, is a key pillar of growth in Asia’s fourth-largest economy.
“Everything seems so expensive these days. I filled my shopping cart with only half the usual amount I buy for the Lunar New Year, but the price came out to 200,000 won ($149.7),” Kim Jinsook, a 55-year-old office worker in Seoul, told The Korea Times.
Kim said she cannot feel a discernible difference in the prices of goods compared to a year ago.
The disparity between government data and public sentiment arises because the factors contributing to a decline in the consumer price index (CPI) are often not immediately noticeable in everyday life.
For instance, a primary factor that has contributed to the reduction in CPI is the freezing of public utility prices, such as electricity, gas, and water. As inflation continued to soar since last July, the government decided to freeze those prices ahead of the general elections in April. As a result, public utility rates, which surged 9.7 percent year-on-year between October and December 2023, moderated to 5 percent this January.
Additionally, the increase in industrial goods prices also slowed. Those prices surged 6.9 percent on an annual basis in 2022, but the rise slowed to 1.8 percent in January thanks to a decline in international oil prices since last November.
In stark contrast, persistently-high grocery prices are increasing the financial burden on consumers.
The fresh food index surged 14.4 percent compared to last January, extending a more than 13 percent increase for the fourth consecutive month.
Prices of agricultural products jumped 15.4 percent, marking the second consecutive month of 15-percent-range growth.
As the Lunar New Year holiday approaches, the skyrocketing prices of essential items are increasing the financial strain on consumers in Korea who prepare meals for family gatherings and ancestral rites. Notably, fruit prices saw a 28.1 percent month-on-month increase. This is the most significant rise since January 2011, when fruit prices soared as much as 31.9 percent.
The inflation rate for dining out in January also reached 4.3 percent, which is 1.5 times steeper than the general average. The inflation rate for dining out has consistently surpassed the overall average since June 2021.
Some market watchers also highlight the emergence of what is known as “stealthflation.” This describes a scenario where inflation takes place in a manner not reflected in consumer or producer price indices, akin to how a stealth plane eludes radar detection. In practical terms, numerous establishments start levying charges for services or items that were previously complimentary, exemplified by the trend of charging for pickled radish accompanying Korean fried chicken.
The greatest concern is that the price index is showing signs of a rebound. “Given the heightened uncertainty in oil prices driven by geopolitical risks, along with the persistently high prices of daily necessities such as agricultural products, it’s plausible that the current trend of slowing inflation might briefly stall. This could lead to a potential uptick in prices for the time being,” Kim Woong, deputy governor of the Bank of Korea, said.
The government is vowing to do its utmost to stabilize the prices of consumer goods. “In preparation for the Lunar New Year, we will accelerate our public welfare policies and continue efforts to control the prices of essential goods, including expanding discount services for agricultural, livestock, and fishery products,” an official at the finance ministry said.