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Utility rate hikes to deepen inflation concerns
A woman shops for vegetables at a traditional market in Seoul, April 7. Korea Times file
By Lee Kyung-min
Delayed utility rate hikes to take toll on incoming Yoon administration
By Lee Kyung-min
The continued rise in electricity and gas rates will add to inflationary pressure, already on a rapid upward trajectory over the past year due to soaring import prices and the recovery of the service industry, according to market watchers.
Korea has raised its gas and electricity prices for May, with additional hikes in store in the coming months. The rush of increasing utility rates that have been delayed by the outgoing Moon Jae-in administration could lead to deteriorating living standards for many. The situation is unlikely to improve anytime soon given the spike in global commodity prices, including energy and agricultural produce, triggered by Russia's war in Ukraine.
Rising inflation will not be easily tempered, as indicated by April's inflation expectations exceeding a nine-year high of over 3 percent, with the producer price index for March hitting an all-time high.
Hike after hike
Gas rates for households and the self-employed have been raised between 8.4 percent and 9.4 percent starting from this month, a hike which came less than a month after the ministry raised the rates by 1.8 percent in April. Further hikes are in store for July and October, the Ministry of Trade, Industry and Energy said, adding that four-person households will see a monthly rate increase of 5,460 won ($4.32) this year.
These increases are explained in large part by the 1.8 trillion won gap as of last year between what the state-run Korea Gas Corp. (KOGAS) spent to import liquefied natural gas and what it collected in utility fees. The snowballing amount comes as gas rates were frozen by the Moon administration to offset other surging prices of goods and services, despite a spike in the import prices of liquefied natural gas.
Also to increase are electricity rates, which have already risen 6.9 won per kilowatt-hour (kWh) this month. Korea Electric Power Corp. (KEPCO) is planning a further increase of 4.9 won per kWh in October. It posted an operating loss of 5.86 trillion won last year, crippled by a freeze in electricity rates despite surging global oil and coal prices.
Woeful indexes
A Bank of Korea survey released April 27 showed expected consumer inflation recording 3.1 percent in April, up 0.2 of a percentage point from a month earlier. The figure was the highest since April 2013. Over 75 percent of those surveyed said that crude oil and petrochemical products will be leading price hikes over the next 12 months, followed by agricultural, fishery and livestock products (37.1 percent) and utility bills (33.9 percent).
Separate data from the central bank showed the country's producer price index standing at 116.46 in March, up 1.3 percent from the month before. It was the highest figure to date, and the fastest increase since January 2017, when it jumped 1.5 percent. The March figure, which registered the 16th consecutive month of increases, was driven mostly by a 15.6 percent month-on-month increase in crude oil and petrochemical products.
The incoming Yoon Suk-yeol administration will grapple with the inflation concerns, for which there is no silver bullet, according to Seoul National University economist Lee In-ho.
“The incoming administration plans to pump in more government fiscal spending for small businesses hit by the limitation rules on private gatherings ― a measure certain to heighten inflationary pressure,” he said. “It will have few options to curb surging living costs.”