Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Gov't under pressure to curb rising inflation
Customers shop at a supermarket in Seoul, March 2. Consumer prices rose 2.1 percent last month from a year earlier. Yonhap
By Yi Whan-woo
Market analysts reported Wednesday that the government is under increasing pressure to take action against the rising prices of consumer goods, as companies rapidly raise prices amid soaring raw material costs and higher wages.
According to Statistics Korea, consumer prices grew by 2.1 percent in March from a year earlier, following a 2.2 percent year-on-year gain in January and a 2 percent increase in February.
Previously, consumer price inflation remained below 2 percent for four straight months.
Economists are expressing concerns about the government's plan to maintain price growth below 2 percent, given the current inflation trend. Achieving this target is seen as essential to maintaining a balance between price stability and economic growth.
They said the rebounding inflation “mostly remains out of the government’s hands,” noting that growing consumer prices are driven mainly by a persistently strong U.S. dollar against major currencies, including the Korean won, and by the Bank of Korea’s rate cut policy.
They noted that the government's weakened control over pricing policy during the recent months of political turmoil also contributed to the rise in consumer prices.
Accordingly, the economists suggest that the government ask for cooperation from businesses in the industries where the prices of products and services have been rising steeply.
“The government should do what it can do to lower prices in the middle of the political chaos, no matter whether its measure will succeed or fail,” said Shin Se-don, a professor emeritus of economics at Sookmyung Women's University.
The professor noted that several major food companies in 2024 revealed their plans for price hikes in response to government demands.
"Korea faces prolonged political uncertainty over President Yoon Suk Yeol’s impeachment following his Dec. 3 martial law declaration," Shin said.
Under the circumstances, a survey showed last week that nearly 40 manufacturers of processed foods and beverages have already hiked the prices of their products for 2025, or have plans to do so.
According to Statistics Korea, the prices of processed foods shot up 3.6 percent year-on-year in March, the highest increase since 4.2 percent in December 2023.
Moreover, it was responsible for a 0.3 percentage point increase in overall inflation in March.
The processed foods included bread and coffee, with their respective prices going up 6.3 percent and 8.3 percent year-on-year.
Yoo Ho-lim, a professor of taxation at Kangnam University, said increasing imports of processed foods can be an option if the manufacturers do not fully cooperate.
“Such an import strategy has been applied concerning fresh produce, which recently saw a shortage in domestic supply due to climate change followed by price hikes,” Yoo said.
The professor said that preventing 'shrinkflation' and other deceptive sales practices will be crucial to stabilizing inflation. Shrinkflation refers to reducing the size or quantity of a product while keeping its price the same or increasing it.
With regard to inflation in March, prices of agricultural, livestock and fisheries products increased 0.9 percent from the previous year. The prices of industrial goods rose 1.7 percent, while prices of electricity, gas and water went up 3.1 percent.
Amid volatility in the international energy market, Finance Minister Choi Sang-mok said the government will focus on curbing utility prices throughout the first half of the year.
"The government will absorb cost increases as much as possible, through cost-cutting measures and self-restructuring efforts, and help mitigate households' cost burden for using energy,” he said.