Electricity price increase to deepen inflation concerns

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By Anna J. Park

As the government clarified its position on increasing electricity and gas prices next April, concerns are rising over whether the rising utility bills will add fuel to rapid inflation.

The core reason behind the government's plan to raise prices in the second quarter of next year is rising global energy prices, which are beyond the control of the Korean government. The globally rising prices of raw energy materials have been afflicting the fact sheets of state-run energy companies, leading the government to charge more to users.

The Korea Electric Power Corporation (KEPCO) plans to raise electricity bills by 11.8 won (approximately 1 cent) per kilowatt, during the course of next year. The average monthly burden on a four-member household using 304 kilowatts per month is likely to increase by 1,950 won next year.

Korea Gas Corporation (KOGAS) will also raise its price by 1.23 won per megajoule next May, followed by further 1.9 won and 2.3 won increases in July and October. The average household electricity bill is expected to increase from current 28,450 won to 33,050 won from next October.

Energy experts say the rising prices this time are not enough to close the losses that KEPCO has been experiencing lately.

However, the increases could send a further blow to low-income households, which have already been experiencing the effects of inflation more acutely than any other income brackets.

According to a study by the Korea Insurance Research Institute, the lowest 20 percent income bracket experienced inflation at 3.6 percent during the period of January last year to September this year, which is 0.94 percentage points higher than the inflation experienced by the top 20 percent during the same period.

The impact of more expensive utility bills is particularly felt among the lowest-income brackets, as the portion of basic necessities in their household income is much bigger compared to those in the higher income brackets.