Engel’s coefficient highest in 9 years

By Kim Tong-hyung

Korean families devoted 13.3 percent of their outlay to food in the second quarter, the highest rate in nearly nine years and a further indicator of the deteriorating living standards of low-income families, central bank data showed Tuesday.

The previous high in the Engel’s coefficient, or the percentage of food consumption to total spending, was 13.8 percent marked in the third quarter of 2001, when the country was still reeling from the fallout from the Asian financial crisis.

The combined spending of Korean households reached 145.9 trillion won ($124.6 billion) from April to June in seasonally adjusted terms, with 19.4 trillion won of it used on food and beverages, the Bank of Korea said.

The Engel’s coefficient, named after 19th-century German economist Ernst Engel, has been traditionally used as a statistic, albeit a loose one, to evaluate the living standards of a country. An increase of the Engel’s coefficient suggests that the country is by nature poorer, while a low coefficient conversely indicates a higher standard of living.

Observers suggest that the increased share of household income spent on food is related to the sharp rise in prices of agricultural produce in recent months and stressed that the government should get smarter in its attempts to curb inflation.

The prices of fresh food products rose by an average of 11.8 percent year-on-year during the second quarter, outpacing the 5.4 percent rise in gross national income, according to the central bank.

The poorest 20 percent of Korean families spent 5.15 percent of their money on fresh foods during the second quarter, up 1.17 percentage points from the 3.98 percent between January and March. In comparison, the richest 20 percent devoted 2.78 percent of their total spending to these items during the second quarter, up 0.47 percentage points from the previous quarter.

“The rise in food and beverages prices was apparently reflected in the increased Engel’s coefficient, as it’s difficult for households to reduce food consumption immediately because prices have gone up. However, it’s premature to discuss the possibility of a long-term rise,” said an official from the Bank of Korea’s disposable income analysis unit.

The country’s Engel’s coefficient hovered around 20 to 30 percent during the 1970s and 80s, but dropped to the 12 percent level in most of the 2000s due to the improvement in household wealth. However, the figure has remained north of 13 percent since last year as the country endured the effects of the global economic turmoil.