True inflation passes 2% in Q2

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True inflation passes 2% in Q2

Korea’s inflation has risen by more than 2 percent in the second quarter if government-controlled prices are excluded, according to the central bank on Sunday. The data indicates there is a significant disparity between the official inflation figure and the reality of the market.

In a report released on Sunday, a team of researchers from the Bank of Korea said the consumer price increased by 1.6 percent in the first quarter and 2.2 percent in the second quarter of this year if the inflation rate is calculated without the so-called “administered prices.”

Administered prices, controlled by the government for policy purposes, apply to 40 service items: various public fees for utilities such as electricity, water and gas, tolls and trains as well as government subsidized welfare sectors including medicine, education, childcare and public transportation. The prices also encompass fees for telecommunications, public broadcasting and international flights, which could potentially be set higher due to their operators’ monopolizing status.

Statistics Korea assessed the country’s inflation rate as 1.3 percent from January to March and 1.5 percent from April to June this year.

These official figures have often been criticized as not truly reflective of the actual rise in prices.

For instance, the price of grain jumped by nearly 20 percent in the first half, the most drastic hike since the government began tracking the data in the early 1980’s.

The price of popular dishes also catapulted. Naengmyeon, or cold noodles, carried an average price tag of 8,808 won ($7.90) in June, up 10.6 percent from a year ago, data from the Korea Consumer Agency showed.

Along with other staples, the steep spike in petroleum prices also put a tremendous burden on local households. The prices of gasoline and diesel, for instance, each rose by around 10 percent in June.

“Administered prices kept a slower pace of rise compared to consumer prices, bringing down the [overall] rise of consumer prices,” said the report.

According to the report, the goods and services controlled by the government are included in the 460 items that Statistics Korea evaluates in order to calculate the inflation rate.

The inflation rate is also one of the key factors that the central bank takes into account when determining whether it would change Korea’s base interest rate, which was kept frozen at 1.5 percent earlier this month for eight straight months.

The Bank of Korea set 2.0 percent as the target inflation rate for 2016 to 2018.

Without the administered prices in the equation, the prices of goods rose by about 1.9 percent since 2016, nearing the central bank’s target. Lee Ju-yeol, the governor of the central bank, said last week that the bank may push up the base rate if inflation reaches the target-level.

“Such analysis indicates that the government must monitor the market trend while excluding administered prices when there is a tremendous gap between them and what is actually happening in the economy,” said the report, adding that suppressing the increase of administered prices too much would eventually worsen price fluctuations in the future.

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