Value context and insight. lkm@koreatimes.co.kr
Why do prices of everything still seem so high?
People shop at a traditional market in Seoul, Sunday. Yonhap
By Lee Kyung-min
The government says the country’s headline inflation is trending down toward the central bank's target of 2 percent.
And yet, the prices of everything, especially food, remain just as high.
This is because the prices of frequently purchased daily staples have remained elevated since in the pandemic years, according to economists, Tuesday.
“A large number of consumers feel that prices are still high, despite government efforts to reassure them otherwise,” Joo Won, director of the Hyundai Research Institute, said.
According to Statistics Korea, Korea experienced a 2-percent increase in headline inflation last month compared to a year ago. This marks the lowest level since a 1.9 percent increase in March 2021.
Still, the cost of living remains high.
The fresh food index rose 3.2 percent in August compared to the previous year. The index for agricultural produce, livestock, and seafood increased 2.4 percent.
Prices of pears and apples rose 120 percent and 17 percent, respectively. Additionally, the prices of cabbages and radish, key ingredients for kimchi, jumped 94.6 percent and 58.6 percent.
The Bank of Korea (BOK) noted that the prices of necessities such as clothing, food, and housing are higher in Korea compared to other countries — about 55 percent above the average for OECD member countries.
Also straining household finances are high debt service costs resulting from rapid monetary tightening after the pandemic, Joo pointed out.
“Years of high borrowing costs have left households strapped for spending. An easing by the central bank should help stimulate the subdued growth in consumption," he said.
In an economic outlook report released, Sunday, Joo said the recent strong rebound in exports will not be sufficient to offset the weak domestic demand.
“The strong export performance driven by the semiconductor industry and stagnant domestic consumption will tell two different stories, depending on who you ask. The impressive results of a few leading IT exporters may not necessarily reflect a stronger purchasing power for the average consumer,” the report read.
The report also showed the monthly increase in debt service costs per household averaged 121,000 won ($90) in the first three months of this year. This represents a more than 40 percent rise from the April-June period of 2022.
“It marked the sixth consecutive quarter of double-digit increases since the third quarter of 2022,” he said.
Korea’s household surplus has been decreasing for the past eight quarters. The surplus represents the amount of money remaining after accounting for disposable income and consumption.
Disposable income refers to the amount remaining after deducting non-consumption expenditures, such as interest payments and social security premiums.
As of the second quarter, Korean households reported a monthly surplus of approximately 1 million won, down 18,000 won, or 1.7 percent, from the previous year.
Over the past two years, real household income has decreased by as much as 3.9 percent.
Market watchers say that stagnant private consumption is unlikely to see a breakthrough unless the BOK lowers key rate to end years of sustained high borrowing costs.