"Will Prices Rise Further After the General Election?"... Reasons Behind Growing Consumer Anxiety [Chosun Price Records]

⑪ Inflation Anxiety Rises About 10 Days Before the General Election

With the 22nd 4·10 general election just over 10 days away, concerns are growing that prices will rise further after the election. This is due to various external factors stimulating inflation and the expectation that public utility fees, which have been postponed from increasing, may be raised one after another.

The expected inflation rate, which reflects consumers' outlook on price increases one year ahead, rebounded after five months. According to the 'Consumer Sentiment Survey' released by the Bank of Korea on the 26th, the expected inflation rate in March rose by 0.2 percentage points from the previous month to 3.2%. The expected inflation rate had been declining, recording 3.4% in October and November last year, 3.2% in December, and 3.0% in January and February this year. However, the recent sharp rise in prices of agricultural products such as apples and pears increased the perceived inflation, and with news of rising international oil prices and the possibility of public utility fee hikes, the rate rebounded. The major items consumers identified as influencing consumer price increases over the next year were agricultural, livestock, and fishery products (63.4%), public utility fees (54.2%), and petroleum products (27.0%), in that order.

[Image source=Yonhap News]

Post-election high inflation concerns... ① Rising international oil prices ② Public utility fee hike worries ③ Producer price index↑

Looking at past cases, the idea that inflation rates surge immediately after elections is more of a misconception. During the 19th, 20th, and 21st general elections, there was no significant spike in inflation right after the elections. According to the Consumer Price Index fluctuation rates from the Statistics Korea National Statistical Portal, May 2012, following the 19th general election, recorded 0.2%, May 2016 recorded 0.1%, and May 2020 recorded -0.1%. Given the annual fluctuation rates of 2.2%, 1.0%, and 0.5% respectively, there was no sudden inflation surge immediately after the elections.

Nevertheless, concerns about a 'real high inflation' hitting after the 22nd general election are growing because factors such as extended production cuts by oil-producing countries and unstable international situations are fueling price increases. On the 3rd (local time), OPEC+, a coalition of major oil-producing countries, decided to extend voluntary crude oil production cuts totaling 2.2 million barrels per day through the second quarter of this year.

Additionally, tensions in the Middle East and the Russia-Ukraine war are contributing to energy price instability. Although global crude oil demand concerns and Saudi Arabia's oil price cuts caused international oil prices to fall earlier this year, the escalation of instability in the Middle East has recently pushed prices back up to the low to mid-$80 range. Ukraine's attack on Russian refining facilities on the 25th further stimulated international oil prices.

There are also concerns about price shocks due to public utility fee hikes. Although the government announced a principle of freezing public utility fees in the first half of 2024 in its economic policy direction released in January, the Korea Electric Power Corporation's (KEPCO) financial situation has reached a critical point, raising the possibility of electricity rate hikes in the second half of the year. Currently, KEPCO's accumulated deficit stands at 43 trillion won, with debt at 200 trillion won.

The producer price index, a leading indicator of inflation, is also on an upward trend. In February, the producer price index was 122.21 (2015=100), up 0.3% from the previous month. Although electricity, gas, water, and waste sectors declined, agricultural, forestry, fishery products, and manufactured goods led the rise. The month-on-month increase in producer prices fell in October (-0.1%) and November (-0.4%) last year due to oil price movements but turned upward in December (0.1%) and January this year (0.5%).

Financial authorities noted that while domestic consumer price inflation is past its peak and is trending downward, uncertainties in domestic and international policy conditions remain variables. The Bank of Korea stated in its Monetary and Credit Policy Report, "If no additional shocks such as a sharp rise in international oil prices occur, the inflation rate will trend downward," but also analyzed, "Considering geopolitical risks and the high rise in living costs such as agricultural products, the downward trend may not be smooth for the time being."