ED Freezing utility charges

Officials should also heed side effects of artificial suppression

Amid mounting inflationary pressure arising from surging commodity prices, the government has vowed to freeze public utility rates until the end of this year. The latest decision reflects the unusual price trends seen this year. The consumer price index in August stood at 108.29, up 2.6 percent from a year earlier. It was the first time in nearly four years that the CPI climbed by more than 2 percent for five consecutive months.

It is understandable that the government is pushing to freeze public utility rates to minimize the financial burden on households and self-employed people who are reeling from the fallout of the COVID-19 pandemic. However, monetary policymakers should also bear in mind that the artificial suppression of price rises inevitably leads to adverse effects if pushed too far. The recent price hikes are due mainly to supply shortages of commodities and farm products. The temporary price surges of agricultural, livestock and fishery products are attributable to seasonal factors. They will return to normal as time goes by.

The commodity price increases are a different story, however. Various structural and geopolitical reasons make it difficult for individual governments to deal with the current situation. For instance, international oil and natural gas prices have soared to the highest level in seven and eight years, respectively, and are expected to rise further. That forced the government to raise the electricity rate by 3 won per kilowatt-hour on Sept. 23 for the first time in eight years. However, other public utility rates, including residential gas, various traffic fares, and water and sewage charges, will be frozen until the year's end. Restraining rate increases by force will result in losses for their producers and providers.

The freezing of public utility charges has been one of the options available for the government as it faces inflationary signals. However, it can be little more than a stopgap measure. Instead, policymakers should develop more practical and creative steps, such as cracking down on hoarding and price-fixing, improving the country's logistical structure, and rationalizing energy use. Also, they must not forget to work out steps to protect vulnerable classes that are suffering the most from public utility rate hikes and other price increases.