Government vows to curb high inflation
The measures will include importing eggs from countries other than the United States and minimizing price increases in fresh produce and public utilities.
The government is concerned that further price increases on fresh goods will influence the price of processed products. A study by the Bank of Korea showed the producer price index, which measures the change in prices received by producers of goods and services, reached a 17-month high in December.
Unlike in recent years, when the government’s main concern was stagnation from low economic growth and low inflation, this winter’s bird flu outbreak, on top of an unusually bad summer drought, has hurt agricultural production and sent prices skyrocketing. This has raised concern that the government’s official weighted inflation rate of 1 percent is not accurately reflecting reality.
“The actual inflation that many people feel on products in their daily lives, such as vegetables and eggs, has risen sharply,” the country’s finance minister, Yoo Il-ho, said Thursday during a ministers’ meeting in Seoul to discuss the inflation issue. “We will work to stabilize the actual inflation felt by the people by focusing on agricultural produce, processed food products and utility bills.”
Last week, the government made the rare move of importing fresh eggs from the United States in an effort to lower egg prices. The domestic supply has been hurt by the worst bird flu outbreak in years. The Korea Rural Economics Institute reported Tuesday that the number of chickens laying eggs fell 3.1 percent last year compared to 2015, resulting in a 2.7 percent cutback on the domestic egg supply. The institute said it would take at least one to two years before egg production reaches normal levels again.
The first batch of more than three million eggs from the United States arrived at Incheon International Airport last week. The government has confirmed that additional eggs from Australia will be coming soon.
The government also promised to raise the portion of fresh produce under its price control program. Currently, 8 percent of produce is subject to a government program where 80 percent of the average producer price in the past five years is guaranteed to farmers. The government will expand the purview of the program to 35 percent of produce.
The government said it would also try to minimize increases in public utility bills.
On processed food, the government plans to continue monitoring prices with consumer protection groups to see if manufacturers are colluding in hopes of benefiting from inflation. Bakeries, instant noodle manufacturers and tuna canneries have recently raised prices on their products, and the Bank of Korea’s preliminary data for December showed the producer price index at a 17-month high of 100.79. The current index uses the base value of 100 set in 2010.
“The data we compile includes raw materials and intermediate products,” said Oh Yong-yeon, a price statistics researcher at the central bank’s economic statistics department. “Unlike the consumer price index, which includes 460 products, the producer price index has 878 different materials and goods, some not found in the consumer price index. Naphthol, for instance, wouldn’t be included in the consumer price index, but it is included in the producer price index.”
Agricultural, forestry and marine product prices on the producer level jumped 7.3 percent year on year. While livestock product prices went down 1.1 percent, fresh produce and fishery products saw a price increase of 5.1 percent and 24.1 percent each.
For Korean consumers, the inflation of fresh produce prices is especially alarming. Just last year, the consumer price of napa cabbage and radish, the main ingredients in kimchi, skyrocketed 70 percent and 48 percent.
The producer price increase of radish was 177.2 percent in December, while that of cabbage was 103.9. Oftentimes, the rise in producer price is reflected in the consumer price after two to three months, which means some Korean consumers could feel the burden of inflation as early as Lunar New Year.
“If the prices of certain raw materials go up, it is possible that such a hike could directly be reflected in the prices of end products that consumers purchase, which is why they say the producer price index is a leading indicator for changes in the consumer price index,” Oh said. “But still, it’s difficult to estimate by how much the changes in the producer price index will actually be mirrored into the consumer price index.”
The producer price of coal and petroleum products also shot up 12.0 percent. Gas sold in filling stations experienced a 22.1 percent growth in the producer price, while that of diesel went up by 24.1 percent.
The producer price of electricity, gas and water tumbled 7.5 percent. However, the producer price of services such as food services and transportation, items that consumers use on a daily basis, went up by 1.3 percent overall.
BY LEE HO-JEONG, CHOI HYUNG-JO [firstname.lastname@example.org]