[The Editors' Verdict] In an Era of High Inflation... Time to Tighten Your Shoelaces

This year, a series of price hikes are scheduled for daily necessities as well as public utility charges. Basic fares for subways, buses, and even taxis, which many citizens use, are all set to increase.

From April, subway and bus (main and branch lines) fares will rise by 300 won each, changing to 1,550 won (based on adult transportation card) and 1,500 won respectively. Village bus fares will also surge from 900 won to 1,200 won. Taxi fares will change earlier, on February 1. Passengers will have to pay a basic fare of 4,800 won, up 1,000 won. The base distance will be reduced from the current 2 km to 1.6 km, a decrease of 400 meters. Even for short trips, passengers should expect to spend around 5,000 won. The public bicycle system, ‘Ddarungi,’ is no exception. Seoul City plans to introduce a new fare system for Ddarungi in May. Currently, the daily pass for 1-hour use costs 1,000 won, but it will double to 2,000 won. The 180-day pass (for 1-hour use), currently 15,000 won, will change to 35,000 won.

Pressure to raise electricity and gas rates is also significant. Korea Electric Power Corporation raised electricity rates by 13.1 won per kilowatt-hour (kWh) for the first quarter (January to March) of this year. As a result, a household of four will see an increase of about 4,750 won per month. Furthermore, rates may continue to rise sequentially every quarter. Although gas rates were frozen in the first quarter, they had already increased by about 40% last year, so the impact remains.

Last year, the consumer price inflation rate was 5.1%, the highest in 24 years since the 1998 International Monetary Fund (IMF) financial crisis when it was 7.5%. The inflation rate, which surged to 6.3% in July last year, is expected to continue its high-level trend around 5% for the time being, even if it does not exceed 6% this year. With inflation itself at a high level, and public utility charges as well as essential living items rising one after another, the inflation situation felt by the public is bound to worsen. January, in particular, is the month of the Lunar New Year holiday. The combined effect of price increases at the beginning of the year, winter agricultural, livestock, and fishery product price hikes, and demand for Lunar New Year seasonal goods is likely to increase inflationary pressure.

Given this situation, attention is focused on whether the Bank of Korea will decide to continue last year’s interest rate hike trend at its first Monetary Policy Committee meeting this year. Considering that the high inflation phenomenon is still ongoing and that major countries such as the U.S. Federal Reserve (Fed) have firmly stated ‘no interest rate cuts this year’ and continue their tightening policies, it is highly likely that the base interest rate will be raised. However, voices within the Monetary Policy Committee calling for a moderation in the pace of rate hikes suggest that the base rate increase will be modest. An increase of 0.25 percentage points from 3.25% to 3.5% per annum appears likely.

The economic crisis caused by high inflation and interest rates will make the lives of ordinary people even more difficult. The year 2023, the Year of the Gyemyo (癸卯年), is a war against inflation. The government and the Bank of Korea must establish more meticulous macroeconomic policies and simultaneously focus on overcoming the crisis and achieving a great leap forward in economic policy. The most fundamental task is to operate the macroeconomy and financial markets stably. We hope that all efforts will be concentrated on this foundation of economic stability. Both businesses and citizens must also tighten their shoelaces even more.