Waning price controls have household bills jumping
By Park Si-soo
The government’s struggle to tame inflation is deflating quickly since the April parliamentary elections went in the books.
Major public and private companies offering daily necessaries have increased the prices of their products and services or are preparing to do so, saying they can no longer prevent rising costs from being passed on to consumers.
With monetary policymakers reluctant to clamp down on money supply, Korea’s fight against inflation has depended on the government’s ability to bully companies and prevent them from raising prices. Regulators like the Fair Trade Commission (FSC) were frequently deployed to keep the companies behaving.
As political clout continues to escape from the Lee Myung-bak government such price control measures are beginning to get harder to sustain.
Korea Electric Power Corp. (KEPCO) has put itself in the vanguard of the post-election revolt, unveiling last month a plan to raise electricity charges by a whopping 13.1 percent. Electricity charges is one of the biggest factors affecting inflation.
KEPCO said the increase is a must amid escalating net loss largely caused by the government’s intervention in price-setting. The power company marked a 3 trillion ($2.65 billion) net loss last year and 8 trillion won in cumulative deficit for the past four years.
KEPCO is in talks with the Ministry of Knowledge Economy regarding the plan and will make its final decision next month, analysts said.
E1, one of the leading liquefied petroleum gas (LPG) suppliers, has joined the move, charging consumers more. Starting May 1, the firm began to sell LGP for 1,854 won per kilogram, up 49 won.
“The increase is to make up for the snowballing deficit,” E1 said in a statement. “If we continue to provide LGP at the current price, we will soon be unable to supply LPG stably.”
The company said it had endured mounting pressure to raise the price in a cooperative manner to the state policies, but the situation is quickly “going out of control.” Market insiders said other LGP suppliers, including SK Gas, are very likely to follow the same path.
Similar signs are emerging in the food industry. Shortly after the election, suppliers of popular processed food items, such as boiled rice and canned tuna, have increased prices by up to eight percent.
The public sector is no exception. Seoul Metro, which operates subway line No.9, is at odds with Seoul City over its plan to increase subway fares to 1,550 won from the current 1,050 won.
The plan was temporarily put on hold amid public criticism, but it is the latest incident evincing fallout of forced inflation reining by the government in both the private and public sector.
This trend seems to go nationwide, but many experts believe it will be short-lived.
“With a presidential election in December, the government will soon announce measures to combat inflation pressure,” an economist said on the condition of anonymity. “Several presidential hopefuls have already raised the need to keep inflation rates low.”
Rep. Park Geun-hye, a leading presidential contender of the ruling Saenuri Party, said days after the election that her party will make utmost efforts to halt inflation. She also called on the government to make “more efforts.”