As prices jump, it's time to learn about the Engel coefficient

Economy

Published: 05 Mar. 2022, 10:52

As prices jump, it's time to learn about the Engel coefficient

Kimchi packages are displayed in a food section at a discount mart in Seoul. CJ CheilJedang's Bibigo lifted its kimchi prices by an average of five percent, and Daesang also announced a price increase of seven percent starting from March. [NEWS1]

Last year's pay raise, it turns out, isn't enough to cover surging inflation.

Lee Yeong-do, a 33-year-old office worker living in Suwon, Gyeonggi and married for three years, says that a salary boost didn't make things any better.

"I did get a salary increase last year, but remaining savings is smaller compared to two years ago," he said, adding that he doesn't know where all the money went.

"I don't have a kid yet, and didn't spend a huge sum of money at once since overseas travel was banned, but I found later that we spent an additional 200,000 won ($165) every month for food compared to the year before."

Lee is not the only one unhappy about the overwhelming inflation and underwhelming paycheck. Over the last week, some 200 posts were uploaded on a Naver community website complaining about price increases.

"Last week it was the homeschooling fee. This week it's the taekwondo academy. Everything is going up — except for my salary," a user wrote on the website.

Statistics Korea found that average earned income per household per month rose 5.6 percent on year to 2.89 million won in the fourth quarter last year. Monthly total income from all sources increased by 6.4 percent during the same period, to 4.64 million won.

Real income — the amount of income adjusted for inflation — only rose by two percent last year, half the pre-pandemic level of 5.4 percent in 2019 and 3.7 percent in 2018.

The increase is most visible in food prices, especially for office workers who tend to visit restaurants frequently.

Eating out became 2.8 percent more expensive last year, rising at a steeper pace than the total consumer prices (2.5 percent). A bowl of naengmyeon (noodles in cold meat broth), which cost 9,000 won per serving last year, was 9,808 won in January 2022, an 8.9 percent increase.

Prices of other popular dishes jumped as well, with jajangmyeon (black bean noodles) up 7.9 percent, kalguksu (knife-cut noodles) 6.3 percent and bibimbap 4.8 percent.

Prices of food and beverages rose at the steepest pace in a decade, up 5.9 percent last year.

Housing and food expenditures are now a larger proportion of spending.

According to Hyundai Research Institute on Mar. 4, the ratio of food expenses to household spending was 12.86 percent last year, the highest in two decades. The index excluded restaurant meals.

Housing costs, including rent payment, water bills and light and heating expenses, was 17.94 percent of the total last year. Though the figure inched down by 0.5 percentage point compared to 2020 (18.56 percent), it was still the second-highest level in five years.

As food and housing spending took up over 30 percent of the total spending, less is available for other expenses, such as entertainment.

Tax payments and social insurance premiums went up as well, up 18.8 percent and 10.3 percent on year.

"Even considering the impact of the pandemic, the current Engel coefficient — a ratio of food spending to total household consumption — is abnormal," said Joo Won, a researcher at Hyundai Research Institute.

"It is not a viable option to cut costs on basic food spending or housing expenses, so the situation apparently got worse," said Joo.

BY JEONG JIN-HO [shin.hanee@joongang.co.kr]