[Inside Chodong] "Prices Have Stabilized?"... The 'Angry' Cost of Living, What the Government Needs to See First

"Stability Refers to This Year's Inflation Rate,
But What Angers People Is the Actual Cost of Living"
Living Costs Up 19.1% Since 2021... Food Prices Up 25%
Cost of Food, Clothing, and Housing Up to 1.6 Times Higher Than OECD Average
Fundamental Reform Needed to Overhaul the Structure for a Real Solution

"Many people get very upset when they hear that prices have stabilized." This was an additional comment made recently by Bank of Korea Governor Rhee Changyong, who predicted that this year's consumer price inflation rate would remain stable near the target level of 2.0%. It is understandable, since everything except wages has gone up, and it has long been the case that 10,000 won is no longer enough for a single lunch. The word "stable" hardly seems appropriate.

On the 15th, ramen was displayed at a large supermarket in Seoul. Photo by Yonhap News

However, when Governor Rhee refers to stability, he is talking about the rate of price increases this year. Although recent instability in the Middle East has added volatility, the steady decline in international oil prices has contributed to the easing of inflation. The sluggish economy, which has reduced demand pressure, has also played a role.

The frustration people feel is a different issue from the stability of the inflation rate. Due to the cumulative price increases over time, the cost of living that people actually experience has already reached a burdensome level. According to the Bank of Korea, from 2021, during the COVID-19 pandemic, until May of this year, the cumulative inflation rate for essential goods was 19.1%. In particular, the sharp rise in food prices has made it even harder for people with already tight budgets. According to Statistics Korea, if the consumer price index for dining out in 2020 is set at 100, last month's index was 124.56, an increase of about 25%. Among 39 dining-out items, prices for popular lunch menu options such as gimbap, hamburgers, tteokbokki, jjajangmyeon, sashimi, dosirak, ramen, and galbitang have surged by more than 30%.

Prices for food, clothing, and housing in Korea are among the highest in the world. As of 2023, if the average price level in OECD countries is set at 100, Korea's food, clothing, and housing costs are 156, 161, and 123, respectively. This means prices are up to 1.6 times higher than the OECD average. The sharp rise in the cost of essential goods, which make up the cost of living, is something that most people, including vulnerable groups, cannot avoid. This ultimately leads to reduced consumption. In a Bank of Korea survey, 62% of respondents who did not increase their spending from January to April this year cited "reduced purchasing power due to rising prices" as the main reason.

Upon taking office, the President ordered that "all possible measures be mobilized for price stability and economic recovery." This is why the Ministry of Agriculture, Food and Rural Affairs quickly formed the "Agri-food Supply and Distribution Structure Reform Task Force (TF)" and held its first meeting the previous day, moving swiftly to devise measures to address prices.

The government believes that the rise in prices for processed foods and dining out is inevitably due to the accumulated increase in costs, and has extended the application of quota tariffs on food raw materials as a response. The government also plans to work with the food industry to minimize both the number of items subject to price increases and the rate of increase, and to find ways to reduce the burden on consumers, such as holding discount events. Authorities will also examine whether there are any unreasonable practices in the distribution structure. All of these are encouraging attempts, as they can help ease the cost of living that people feel right now.

However, to fundamentally address the globally high prices of food, clothing, and housing, it is necessary to go beyond simply eliminating bad practices and to undertake sweeping reforms that change the structure itself. As of 2023, the average distribution cost ratio for agricultural and livestock products was 49.2%, meaning that 5,000 won out of a 10,000 won agricultural product was distribution cost. Since this affects the livelihoods of many people, it will not be easy to tackle, but the discussion must begin immediately. It is essential to quickly assess the feasibility of measures such as promoting competition among companies through deregulation, diversifying sources of raw material imports such as agricultural products, and supporting research on seeds that are resilient to climate change, and to consider introducing them from a mid- to long-term perspective.