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.
Will utility fee hikes affect inflation cooldown?
Electricity and gas meters are set up on a wall outside a residential building in Seoul, Monday, when the government announced it would increase utility costs for the second quarter. Yonhap
By Yi Whan-woo
By Yi Whan-woo
The hikes in the costs of utilities starting Tuesday are prompting speculation over how they may affect the course of inflation, which has been cooling down in recent months.
Analysts said Monday the price increases are not likely to disrupt the easing of headline inflation, the overall measure of change in value of all goods and services within an economy.
They were referring to the government's announcement earlier in the same day that it will jack up utility fees in the second quarter ― 8 won ($0.01) per kilowatt-hour (kWh) for electricity and 1.04 won per megajoule for gas.
The experts still did not rule out the possibility of higher utility costs having upward pressure on core inflation that still remains volatile and thus impedes headline inflation from falling at a faster pace.
Core inflation is a measurement of change in the prices of goods and services excluding food and oil. It is used to estimate the long-term trend of overall inflation.
Headline inflation fell to a 14-month low of 3.7 percent in April, after rising as high as 6.3 percent last July and then decelerating to the 4 percent range in February and March. On the other hand, core inflation has remained in the upper 4 percent range for the past three months.
“I don't think price hikes of electricity and gas are at a worrisome level to push inflation to go up again,” said Lee Sang-ho, head of the economic policy team at the Korea Economic Research Institute (KERI).
He noted inflation has been decelerating this year although the electricity rate was hiked by 13.1 won per kWh in the first quarter, which marked the steepest increase in about four decades.
Lee reckoned the government thus was “right on track” in its decision concerning the second-quarter utility prices, which it said were “determined by carefully considering the possible impact on the people's livelihood.”
“But even so, the government should not let its guard down against inflation,” he said, noting the costs of production, services and other economic activities due to higher utility costs can prompt core inflation to move up continuously and affect overall inflation.
Speaking on condition of anonymity, an LG Economic Research Institute economist voiced a similar view, saying, “External inflationary risks, such as global oil prices and bottlenecked supply chains, can work against inflation cooldown at any time.”
The Citizens' Coalition for Economic Justice (CCEJ), an advocate group for people's livelihoods, assessed the financial burden on small business owners due to the rising utility fee should “not be overlooked” with summer approaching.
“The cost of turning on air conditioners can be too much for those businesses,” the coalition said. The electricity price hike is estimated to cost a four-member household around 3,000 won more on average per month. The gas price increase is expected to cause a four-member household to pay about 4,400 won more per month.
“In that regard, inflation felt by the businesses with low income may be higher (than the actual figure) with the utility price increase,” it added.