Inflation was bad and is only getting worse

Economy

Published: 08 Mar. 2022, 20:08

Inflation was bad and is only getting worse

Wildfires started on Mar. 4, in Uljin, North Gyeongsang, spread to other areas including Okgye-myeon in Gangneung, Gangwon. [YONHAP]

Soaring food costs are hitting Korean pocketbooks, with the Ukraine conflict and abnormal weather conditions promising even more inflation.

Food prices had been surging sharply across the globe since the Russian invasion.

According to the Food and Agriculture Organization (FAO) of the United Nations on Mar. 4, its food price index hit a record 140.7 points in February, up 3.9 percent from the month before and 24.1 percent on year.

The FAO food price index measures the monthly change in global food prices in five categories – meat, cereals, vegetable oil, dairy and sugar – relative to the price average during the base period 2014-2016.

Growing concerns over the Ukraine-Russia war pushed up international grain prices, as the two countries are major wheat exporters. The FAO cereal price index increased three percent to 144.8 points from January, and was up 14.8 percent on year.

Just as it takes three to four weeks for fluctuations in global crude prices to be reflected in the domestic energy prices, the grain price hike is not likely to hit the Korean market immediately, but will after a while.

Local food manufacturers raised prices over the past few months due to higher costs of raw materials, labor and logistics, and the upward trend is expected to continue.

The weather is another factor.

This year’s crop season in South America was significantly affected by abnormal weather conditions caused by a strong La Niña, which refers to the ocean water temperature dropping below the normal level. Corn yields in Argentina and Brazil were particularly hit hard.

“As the volatility in global grain prices is rising, we plan to monitor the supply situation on daily basis,” said a spokesperson for the Ministry of Agriculture, Food and Rural Affairs.

A red flag has already been raised for prices of certain food products.

Pollack, which is heavily dependent on imports from Russia, saw a notable increase in price over the last week.

1Economic sanctions on Russia over its invasion of Ukraine are expected to lift prices of Russian pollack and king crab. [YONHAP]

The price of 10 frozen pollacks from Russia averaged 51,500 won ($41.7) from Feb. 27 to Mar. 5, up 4 percent from the previous week, at the Noryangjin Fisheries Wholesale Market in Dongjak District, southern Seoul.

Prices for Norwegian salmon, which is imported through Russia, and Russian king crab are forecast to rise as well.

The worst winter drought in five decades is likely to boost inflation as well.

The Korea Rural Economic Institute (KREI) projected that this year’s onion crop will decrease by 9.5 percent compared to the previous year. Yields of onions that were slated to be shipped during March and April will presumably remain the same as last year, though the cultivated area had been scaled up by 1.2 percent from the previous year.

Potatoes, napa cabbage and white radishes will also be more expensive in the first quarter of 2022, according to KREI.

Wildfires caused by the drought might add to the inflationary pressure.

Statistics Korea found that the annual increase in consumer prices was 4.1 percent in 2001, larger than 2.3 percent in the year before, due to a massive wildfire on the east coast in 2000 that lasted for eight days. Fresh food prices surged sharply in that year, up 7.2 percent year on year, while the previous year’s figure was negative two percent.

Suspected to have begun on Mar. 4 in Uljin, North Gyeongsang, the wildfires on the east coast are the country’s second-biggest mountain fire following the one in 2000, according to Korea Forest Service.

“We had a hard time putting out the fire because of the worst winter drought in fifty years,” said a spokesperson for the Korea Forest Service.

Statistics Korea announced Mar. 6 that the price of eating out increased at a record pace in 13 years, as the restaurant meal price index reached 107.39 in February, up 6.2 percent year on year. [NEWS1]

Eating out might also get pricier due to increasing demand, as the government eased social distancing rules starting from Mar. 5, allowing restaurants, bars and cafes to stay open until 11 p.m.

Restaurant meals became 6.2 percent more expensive in February compared to the previous month, despite social distancing measures amid the Omicron wave.

In February, Bank of Korea Governor Lee Ju-yeol moved up the estimated annual consumer price increase rate to 3.1 percent, up 1.1 percentage points from the previous estimation, citing “the sharper-than-expected rise in inflation” and “the [inflation] factors in terms of demand as well as supply.”

The Ministry of Economy and Finance’s projection for the annual inflation rate was 2.2 percent.

Analysts point out that the government wasn't consistent in its macro policies.

“The Bank of Korea lifted the base interest rate while the government is releasing money ahead of the presidential election, so the anti-inflation measures didn't work,” said Kang Sung-jin, an economics professor at Korea University.

“The government should minimize liquidity risk while providing support for financially vulnerable households.”

BY SOHN HAE-YONG, IM SOUNG-BIN [shin.hanee@joongang.co.kr]