[why&next] Interministerial Price Control "Lacks Effectiveness" vs "Blocks Maximizing Upward Trend"

Government Tightens Control on Inflation
"Uncertain Effectiveness of Price Stabilization Despite Management...Is It Effective?"
"Checking Gridflation Raised Opportunistically...Prevents Larger Price Surges"

Although the government is tightening its grip on price control, there are criticisms that its effectiveness is limited. The approach of having deputy ministers from each ministry monitor the price trends of their respective items and strengthen on-site responses is seen as having uncertain effects on stabilizing prices. However, there is also a counterargument that this can check companies attempting to raise prices opportunistically despite no increase in raw material costs, thereby preventing further price hikes.

On the 17th, major government ministries including the Ministry of Economy and Finance and the Ministry of Agriculture, Food and Rural Affairs officially launched the inter-ministerial special price stabilization system starting this month. Each ministry is intensifying on-site inspections for price management daily and monitoring price trends by item under their jurisdiction. For example, the Ministry of Agriculture, Food and Rural Affairs has designated persons in charge for each processed food item such as bread, milk, and coffee, which have a high price perception, to strengthen management of individual items. These dedicated personnel visit production companies of each item or hold meetings with the industry to request policy cooperation.

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho is inspecting the prices of major items during his visit to Emart Yongsan branch in Seoul on the afternoon of the 14th. Photo by Jinhyung Kang aymsdream@

There are opinions that such close management may not be very effective. The government’s inspection of items under its jurisdiction is unlikely to become a structure that directly intervenes by specifically identifying the price-determining factors of certain product groups. Each person in charge collects supply and demand difficulties experienced during distribution through meetings and quickly devises solutions to reduce factors causing price increases.

An official from the Ministry of Economy and Finance explained, “It is impossible to control prices by receiving detailed reports one by one from companies that changed prices, considering industry backlash,” adding, “What the government can do is to quickly identify supply and demand difficulties.” While the government’s pressure on the food industry may have a short-term effect of restraining price increases, there is also an opinion that it is difficult to prevent companies from postponing price hikes and then raising them all at once later. Another official from the Ministry of Economy and Finance said, “Everyone knows that the only way to actually control prices is through interest rate adjustments,” and “It is difficult to artificially control prices when raw material prices are all rising.”

There is also an opinion that through price management, the government can curb the vicious cycle of ‘Greedflation.’ Greedflation refers to large corporations excessively raising prices out of greed, thereby exacerbating inflation. Another official from the Ministry of Economy and Finance emphasized, “Although the effectiveness of the measures is being questioned, the government cannot just stand by saying they are ineffective during the current inflationary period,” and “When inflation is triggered, even companies without clear reasons for price increases join in to raise prices, so the government can send indirect messages to such companies and help curb further price rises.” Even if price stabilization is difficult to achieve, this should be seen as an effort to prevent a more severe inflationary trend.

Last month, the price of milk rose by 14.3%, reaching the highest level in 14 years, as major food prices closely monitored by the government showed a significant increase compared to last year. On the 14th, a citizen visiting a large supermarket in Seoul is selecting milk. Photo by Jinhyung Kang aymsdream@

The government is issuing daily messages to check companies’ illicit and sneaky price increases and is indicating its willingness to intervene in ‘shrinkflation’ (reducing volume or quantity to effectively raise prices). On the morning of the same day, Kim Byung-hwan, the 1st Vice Minister of the Ministry of Economy and Finance, presided over the ‘Emergency Economic Vice Ministerial Meeting and Price-Related Vice Ministerial Meeting,’ stating, “There are many concerns about illicit price increases through volume reductions, so-called shrinkflation,” and “This is not an honest sales practice and can undermine consumer trust, so the government recognizes it as an important issue and is taking it seriously.” He added, “First, by the end of November, the Korea Consumer Agency will conduct a survey on major daily necessities and establish a reporting center to receive reports on related cases.”

Based on the survey, the government plans to promptly prepare concrete measures to enhance consumers’ right to know. In addition, the Fair Trade Commission will improve the system so that consumers can easily identify changes in product volume and other details as soon as possible.

However, there are opinions both inside and outside the government that this too may not be an effective measure. Under the current unit price labeling system, consumers can already know the unit price of products at large supermarkets. However, to allow consumers to know how much the price has changed compared to the previous volume, businesses would need to be specifically required to display past prices or other standards alongside current prices daily, which is difficult to set reasonably. The burden on businesses could also become excessive. A Fair Trade Commission official stated, “We will prepare measures that do not increase the burden on businesses as much as possible within the shortest possible time.”