Smartphones highlight new items in inflation basket
By Kim Tong-hyung
Modern Korea is a nation that sees smartphones glued to heads and hands, convenience-store snacks shoved in mouths and people rushing off to appointments with their dog’s hairdresser. This at least appears to be the picture painted by Statistics Korea, which Tuesday updated its typical basket of goods and services to calculate Korean inflation rates.
Government authorities claim that the renewed shopping basket reflects the spending habits of consumers, who are becoming more tech-savvy and health-conscious, their fixation with ``samgak gimbab’’ (triangle-shaped seaweed rolls) aside.
However, critics question whether the shifting of goods and services in the inflation basket is motivated more by bureaucratic desperation to soften the monthly inflation readings that continue to be uncomfortably high.
The controversy has been the decision to exclude gold rings, popular as gifts here, from the inflation calculation. A near-30 percent jump in the prices of these rings contributed greatly to the consumer price index (CPI) hitting a three-year high of 5.3 percent in August.
Officials admit that the new inflation basket could effectively shave about 0.4 percentage point off the CPI, the country’s key measure of inflation.
Smartphone rates, game consoles, grooming costs for pets, samgak gimbab, tteokbokki (rice cake cooked in chili sauce), makgeolli (traditional peasant wine), and duck meat, which is gaining popularity here, highlighted the new items in the inflation basket.
Out are payphones, video rentals, camcorders, electronic dictionaries, hanbok (traditional Korean costume), and vending-machine coffees, as well as the aforementioned gold rings.
The statistics agency also changed the base year for the calculation of CPI to 2010 from 2005, which means that the revised composition will be applied retroactively to January 2010. The country renews its inflation basket every five years to reflect the changing nature of shopping behavior and the influence of new technology.
When measured by the re-jigged shopping basket, average consumer-price inflation between January and October fell from 4.4 to 4 percent.
``The price of industrial goods, fruit, vegetables and meat provided downward pressure on the CPI, while services prices provided upward pressure. It’s natural that the CPI dips whenever a new inflation basket makes its debut, as people reduce the consumption of expensive products and increase their consumption of relatively cheaper ones, thus shifting the influence of items for headline numbers,’’ said Yang Dong-hee, an official from Statistics Korea’s economic statistics team.
The agency also changed its way of measuring core inflation, which strips volatile items like energy and food. The prices of rice, meat, fish, processed food, electricity and gas will be excluded from the calculation of core inflation as well, which will obviously take air out of the numbers.
Inflation has been consistently above the government’s 4 percent target this year before dropping to 3.9 percent in October, resulting in an acute squeeze in the living standards of families already struggling to cope with stagnant wages, unemployment and record debt.