What happens if you push prices down?

KIM KI-HWAN
The author is a business news reporter of the JoongAng Ilbo.

A new position that is not on the government ministry organization table has appeared. They are called the “ramen manager” of the Ministry of Agriculture, Food and Rural Affairs, the “mackerel manager” of the Ministry of Oceans and Fisheries, and the “petroleum manager” of the Ministry of Trade, Industry and Energy. Their main task is to manage the inflation rate by the item in charge.

The positions were created shortly after a meeting presided over by Deputy Prime Minster and Minister of Economy and Finance Choo Kyung-ho on Nov. 2. In the meeting with government ministers related to prices, Choo said, “A pan-government special price stability system will be activated immediately. The vice minister of each ministry will be in charge of stabilizing prices.”

The price situation is so urgent that dedicated officials must closely monitor prices. According to Statistics Korea, prices rose 3.8 percent in October from a year earlier. It is the highest surge in seven months since 4.2 percent in March. The cumulative inflation rate in the first 10 months of this year was 3.7%. It has become nearly impossible to achieve this year’s price control target of 3.3% set by the Ministry of Economy and Finance. Ahead of the parliamentary elections next April, there is no topic more sensitive than soaring prices.

In 2012, President Lee Myung-bak introduced the so-called “price management responsibility identification system.” After 52 daily necessities were designated, each official in charge was held accountable for price hikes, something similar to what the current administration is trying.

It would be nice if chastising government officials could keep prices stable. But the ending was not good. The price came down for the time being, but jumped all at once later. It is a result of ignoring the supply and demand of market principles and artificially suppressing prices.

Former Deputy Prime Minister and Finance Minister Kang Kyung-sik — who served as the director of the price policy bureau at the Economic Planning Board (currently the Ministry of Economy and Finance) and as the finance minister (1982-1983) — recalled later. “When the government tried to control the price of snacks, the size was reduced. When the government tried to control the price of soju, the alcohol content was lowered. The statistics showing the prices have stabilized at 3 percent range means the price index at 3 percent. That is the limit of price control by the government.”

There are signs that Kang’s concerns are becoming reality. Recently, the food industry has released 4.5-gram packs of seasoned laver instead of 5 grams, orange juice with 80 percent fruit juice, not 100 percent, and frozen dumplings with two less pieces. It is called “shrinkflation,” a sly tactic to avoid consumer resistance to price hikes.

The causes of high prices are complex. Cash distributed around the world after the spread of Covid-19 in 2020, the soaring prices of raw materials due to the Russia-Ukraine war, and the supply chain collapse triggered by the U.S.-China hegemony contest are among the factors.

Demand is growing for a soft landing in an era where high prices are a norm. Presidential Chief of Staff Kim Dae-ki and Deputy Prime Minister Choo Kyung-ho — both of whom worked as price management officials at the Economic Planning Board in the 1980s — are well aware of the situation. They know that they can hardly control prices.