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| Eo Woon-sun, a senior official at Statistics Korea, gives a briefing on inflation for December and all of 2022 at Government Complex Sejong, Friday. Yonhap |
Consumer price growth hit 24-year high in 2022
By Yi Whan-woo
The planned price hikes of utilities and public transportation fees in 2023 pose challenges to Korea's fight against inflation that still remains high while stabilizing at a slow pace, according to analysts.
On Friday, the Ministry of Trade, Industry and Energy announced plans to increase electricity rates in the first quarter of 2023 by 13.1 won ($0.01) per kilowatt hour (kWh), compared to a 2.5 won hike per kWh in the final three months of 2022 and 19.3 won per kWh for the whole of 2022.
The hike will come as consumer prices in December rose 5 percent from a year earlier, remaining in the 5 percent range for five consecutive months after surging 6.3 percent in July.
The inflation rate for all of 2022 stood at 5.1 percent _ the highest level since 1998 when it climbed to 7.5 percent in the midst of the Asian financial crisis.
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| Fruit and vegetables are displayed for sale at a traditional market in Seoul, Tuesday. Yonhap |
While annual inflation next year is forecast to come down to the 3 percent range, the outlook can be adversely affected as the government is poised for additional prices hikes on electricity as well as gas fees, according to Kim Wan-joong, the chief economist at Hana Institute of Finance.
"The increase in public service-related costs apparently put upward pressure on inflation and may not go down as easily as expected," Kim said.
He was referring to the Ministry of Economy and Finance's prediction that the 13.1 won hike in electricity rates can raise inflation by 0.15 percentage point next year.
Prices of electricity, gas and water combined accounted for 0.41 percentage point of 5.1 percent inflation in 2022.
Under the circumstances, the energy ministry deems a total of 51.6 won increase in electricity fees for 2023 to be appropriate in its broader plan to salvage heavily-indebted energy companies, including the country's sole power distributor Korea Electric Power Corp. (KEPCO), and Korea Gas Corp. (KOGAS).
While it did not increase the gas price in the first quarter of 2023, the energy ministry plans for such an increase beginning in the second quarter of the same year.
It accordingly wants to raise the gas price by up to 10.4 won per megajoule (MJ) for all of 2023, compared to a 5.47 won increase per MJ in 2022.
"Virtually every business needs to use electricity and gas, meaning the hikes in those utility costs will result in price increases of goods and services," said Joo Won, deputy director of Hyundai Research Institute.
The fight against inflation can get even tougher, as the Seoul Metropolitan Government is considering increasing subway and bus fares by 300 won each from the end of April next year.
If realized, it will be Seoul's first price hike in public transportation fees since June 2016. The subway fare may go up to 1,550 won from 1,250 won, while the bus fare may rise to 1,500 won from 1,200 won.
"We fully understand that the Seoul city government has been prudent about price hikes in public transportation for nearly seven years, but even so, the planned hike next year is feared to worsen inflation and it is not being done in a timely manner," an activist from a civic group said on condition of anonymity."
Meanwhile, core inflation, which excludes volatile agricultural products and oil prices, rose 4.1 percent in 2022, up from a 1.8 percent growth tallied in 2021.
During the same time period, prices of daily necessities _ 144 items closely related to people's everyday lives, such as food, clothing, and housing _ rose 6 percent.
The price of utility services gained 12.6 percent, while the price of agricultural, fisheries and livestock products increased 3.8 percent and industrial product prices rose 6.9 percent.
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