Families squeezed further from rising electricity, gas bills
Korea’s consumer price inflation hit a three-year high of 5.3 percent in August, driven by soaring food costs. The imminent rise in the bills for public utilities such as electricity, gas and water has been raising concerns about price pressures hitting a new peak. / Yonhap
By Kim Tong-hyung
Korea’s inflation alarm has been blaring and it now appears that higher utility costs will pump up the decibels.
The consumer price index (CPI), the country’s preferred measure of inflation, hit a three-year high last month as rising food and fuel prices ate into family finances. Policymakers are now dreading the effect of the hiked bills for electricity, gas and water, which seem as more than enough to extend the streak of bad data.
Despite the steep rise in the cost of living, the government has approved the increase in utility costs as the snowballing debt at public service providers such as the Korea Electric Power Corporation (KEPCO) has become difficult to disregard.
Electricity prices rose 2 percent in August from the same month last year, while the household bills for gas increased by more than 10 percent during the same period. The prices for water rose by more than 2 percent and inner-city bus fares by 5 percent, all contributing for an overall 1.4 percent rise in public service bills last month, Statistics Korea said.
Electricity is among the biggest items in the CPI basket, just behind rents, mobile-phone fees and gasoline prices. Next on the hike list are wholesale gas prices and highway tolls, and municipalities across the country are debating further raises in public transportation fees.
Government officials are willing to bet that the CPI figures will show more sense of gravity once food prices tame. But critics argue that the higher bills for electricity and other public utilities could offset the decline in food prices by driving up household expenses and the costs of manufactured goods.
``There is obviously some room for increase in utility costs, which had been suppressed in the price-control efforts. It would be important for us to time the rise in utility bills carefully to reduce their affect on household expenses,’’ said an official from the strategy and finance ministry.
``We believe that the year-on-year measurement of consumer prices will dip in the fourth quarter due to a base effect created from last year’s numbers, and there is a possibility that the hikes in utility bills will come during this period.’’
The CPI hit a three-year high of 5.3 percent in August, breaching 5 percent for the first time since the second half of 2008, as higher food costs continue to put pressure on consumer prices.
Highlighting the country’s tricky combination of fragile growth and high inflation, the core rate of consumer-price inflation, which excludes volatile elements such as food and fuel, was 4 percent in August, representing the highest level since 4.2 percent in April 2009.
Foreign IBs cut Korean growth forecasts
Soaring inflation, which has been keying a slew of bad data for the country, has already forced the Lee Myung-bak government to cut growth forecasts in a pre-election year.
The Finance Ministry in June lowered the country’s annual growth target in gross domestic product from 5 to 4.5 percent and upped its inflation projection from 3.5 percent to 4 percent.
Forecasts are even gloomier now with the debt problems in the United States and Europe dealing a fresh blow to global recovery hopes, and Finance Minister Bahk Jae-wan recently admitted that the country may need to lower its growth expectations yet again.
And it seems that foreign investment banks have already beat the Finance Ministry to it. The average annual growth projection for the Korean economy by nine foreign investment banks doing business here stood at 4 percent in August, down from the 4.2 percent in July. The 4 percent projection was the lowest among the 10 major Asian economies aside of Thailand’s 3.9 percent.
The foreign investment banks’ inflation projections for Korea also rose from 4 percent in July to 4.2 percent in August.
Morgan Stanley lowered its growth projection for Korea from 4.5 percent to 3.8 percent. UBS shaved 0.5 percentage points from its July forecasts to arrive at 3.8 percent, claiming that the economies of Korea and Taiwan are most vulnerable to external factors.