By Kim Tong-hyung
Official figures indicate that inflation is starting to fall back toward the Bank of Korea’s (BOK) 3 percent target. But consumers will sarcastically point to their rising bills that suggest the consumer price index (CPI) continues to run screaming from day-to-day realities.
Headline inflation was measured at 2.5 percent in April from a year earlier, according to a Statistics Korea report Tuesday, representing a 21-month low and falling from 2.6 percent in March and 3.1 percent in February.
The central bank aims to keep annual inflation at 3 percent this year although a range from 2 to 4 percent is regarded as acceptable.
Officials at the Strategy and Finance Ministry were quick to snatch up the latest report and claim they finally have the beast of inflation under control. The elevated costs of food, fuel, utilities and industrial goods raise questions whether this is an absurd situation where policymakers have inflation sorted out but not the rising prices.
It’s hard to take the lower CPI as a true sign of price stability when the base of comparison is the outrageous 2011, when inflation was measured above 4 percent for most of the year as consumer prices lost all sense of gravity.
The reading for last month was also influenced by temporary factors, such as increased government support for daycare centers and school meals, which are cosmetic effects that will wear off soon.
And while the headline inflation has aligned with expectations, core inflation, which strips out volatile elements like food and energy, rose by an annual 1.8 percent, confirming that price pressures are consistent.
``While prices rose across many major items of consumption, the gain in the CPI was limited by significant falls in the cost of childcare outlays, telecommunications fees and insurance premiums for automobiles,’’ said an official from Statistics Korea’s consumer price division.
Household spending on childcare facilities declined by 34.1 percent annually, thanks to a set of welfare measures introduced by election-year policymakers. Money spent on kindergartens and school meals declined significantly as well.
Telecommunications bills fell by 3.4 percent year-on-year as attempts by mobile phone carriers to raise rates have been kept in check.
However, the prices of fruit, vegetables and other agricultural products jumped by nearly 11 percent, while the cost of petrochemical products increased by 6.5 percent. Household bills on utilities like water, electricity and gas rose by 5.2 percent, while gasoline was 7 percent dearer.
By all accounts, the squeeze on living standards remains acute, adding to the agony of workers, whose take-home pay continues to diminish as wages fail to keep pace with the rising cost of living.
Among food items, meat was a rare item that became cheaper, with prices dropping by nearly 9 percent compared to last year. The decline was predictable as meat prices soared abnormally last year after a foot-and-mouth outbreak devastated farms up and down the country.
With the central bank quickly wasting away its monetary credibility, the country’s fight against inflation has depended on the government’s price controls and its ability to bully companies out of elevating price tags.
With the finance ministry choreographing the action and the Fair Trade Commission (FTC) and National Tax Service (NTS) deployed as enforcers, the government has suppressed businesses from raising the prices of their products and services, resisting criticism that their measures are running against the limits of acceptability.
But with the parliamentary elections already in the books and the clock ticking toward the presidential vote in December, it appears that the lame-duck administration will have a tough time extending its ``whack-a-mole’’ strategies.
Already, a number of firms in the retail, food and services industries say that they can no longer suppress costs from being passed on to consumers. Then there are municipalities discussing raising prices for mass transit and other public services.
Dongwon F&B last week upped the prices of its instant meal products by an average of 7 percent, while industry rival Ottogi raised its canned tuna by 9 percent and curry mix by nearly 10 percent.
Inflation was measured at 4 percent for all of 2011. However, this was after the government in November jiggled the country’s basket of goods and services in calculating inflation rates to reflect the changing nature of shopping behavior and influence of new technology. Under the contents of the old official shopping basket, annual inflation for last year would have been measured at 4.4 percent.