BOK calls for reforms to tame food, clothing prices driving up cost of living

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BOK calls for reforms to tame food, clothing prices driving up cost of living

Published: 18 Jun. 2024, 17:11

SHIN HA-NEE
shin.hanee@joongang.co.kr

Bank of Korea Gov. Rhee Chang-yong speaks during a press conference held at the central bank in Jung District, central Seoul, on Tuesday. [JOINT PRESS CORPS]

Bank of Korea (BOK) Gov. Rhee Chang-yong called for structural reforms to tame the lofty cost of living, as the latest central bank report showed that the country’s commodity prices are chronically higher for food and clothing compared to other major economies, while utilities remain lower.

Utility prices, including electricity rates, should be upped gradually, while agricultural imports should be expanded, the central bank chief suggested.

“While inflation has been slowing gradually, the prices of consumer staples such as food products and clothing remain at a higher level compared to major economies, posing a significant burden on the cost of living,” said Rhee during a press conference held at the BOK in central Seoul on Tuesday.

“Inflation can be mediated with monetary policy, but the high cost of living cannot be tackled solely with monetary measures, which is the reason why the public could not feel inflation receding despite the rate of increase slowing to 2.7 percent in May compared to 5 percent earlier last year,” said the central bank chief, adding,“I believe we have reached a point where we need to consider what kind of structural reforms are needed in order to rein in the higher cost of living.”

The BOK published its biannual report on the inflation situation on Tuesday, noting that consumer prices have been increasing at a slower pace through the first half of the year than in the latter half of last year. Core inflation, which excludes volatile food and energy prices, also decelerated to 2.4 percent in the first six months, compared to the 3 percent increase in the latter half last year.

Korea’s consumer prices adjusted for national income fell to the average range among major economies, according to the central bank. However, the BOK pointed out that Korea has significantly higher prices for some consumer staples — notably food products and clothing — and lower prices for public services, including public transportation fares as well as electricity and water bills.

The BOK cited low market openness and sluggish productivity in the agriculture sector for the higher food prices, and the country’s preference for brand products and a high-cost distribution system affecting clothing. Expanding agricultural imports and enhancing supply elasticity of domestic farms as well as refining the retail pricing system in the fashion industry were suggested as possible solutions.

The central bank also argued that utility prices should be gradually upped, while providing selective support for financially vulnerable groups.

Rhee stressed that “while the low public service prices may be a good thing in the short term for the general public, we all know that it is unsustainable,” suggesting that the current price level would result in an even bigger deficit for the state-run utilities and an overconsumption of energy.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]