As the monthly inflation rate is about to enter the 6% range, the sigh of the common people is deepening. The government seems to be in a dilemma by anticipating that inflation will continue to rise in the future and devising a variety of countermeasures, while taking up a drastic measure to raise utility rates.
According to related ministries on the 27th, the government decided to raise electricity and gas rates at the same time from the 1st of next month after weighing the effects of rising prices and rising utility rates.
In the meantime, the government has been putting pressure on upward pressure by freezing utility rates on the grounds of price stability. In the second quarter of last year, the fuel cost adjustment unit price was frozen for four consecutive quarters. Gas rates remained flat after the corona pandemic, but were raised in March for the first time in 1 year and 9 months.
The reason why the government, which prioritizes price control, raised utility rates is interpreted as a high-level policy considering the normalization of the management of KEPCO and Korea Gas Corporation, which are in financial difficulties. “As international oil prices, liquefied natural gas (LNG) spot prices, and foreign exchange rates have surged all at once from the second half of last year, an increase is inevitable,” said an official from the Ministry of Trade, Industry and Energy.
In fact, the industry analyzes that the recent inflation rate in Korea is being influenced by foreign factors. The Bank of Korea estimated that overseas factors contributed 56.2% to Korea’s consumer price inflation in May through the report ‘Checking the Operational Status of the Price Stability Target’ released on the 21st.
The Bank of Korea said, “Overseas factors such as rising energy raw materials and international food prices and supply chain disruptions have significantly affected the global inflation since last year. The secondary ripple effect of these factors will not be small.”
In the second half of the year, inflation is expected to rise. Choo Kyung-ho, Deputy Prime Minister and Minister of Strategy and Finance, said, “Most of (inflation) originates from overseas, so if international oil prices drop a little in a short period of time, it would be breathless, but that won’t be the case for the time being.” expected to enter the “Overall, high inflation will continue for a long time,” he said. “We will mobilize all possible means.”
Each ministry is preparing countermeasures with price stability as its top priority, such as lowering tariffs on processed foods, increasing the government stockpiling of agricultural products, and providing discount vouchers. The Ministry of Agriculture, Food and Rural Affairs and the Ministry of Oceans and Fisheries established the ‘Agricultural and Fisheries Food Price Stabilization Response Team’ to monitor major items.
From the 1st of next month, the range of fuel tax cuts will be expanded from 30% to 37%. If the extent of the cut is reflected in the consumer price, additional cuts can be expected by 57 won per liter (ℓ) for gasoline, 38 won for diesel, and 12 won for liquefied petroleum gas (LPG) butane. Compared to when the fuel tax is 100% applied, gasoline is 304 won, diesel 212 won, and LPG 73 won lower per liter.
After collecting criticism that the effect of the fuel tax cut is insignificant, it is also conducting an on-site inspection. The Ministry of Trade, Industry and Energy will organize a joint inspection team with relevant ministries such as the Fair Trade Commission from July to check whether unfair practices have occurred in the oil refining industry and strengthen on-site inspections of the oil industry.
As the heat wave is expected this summer, KEPCO plans to increase the discount limit to 40% for about 3.5 million households eligible for welfare discounts to temporarily ease the burden of charges for the vulnerable in July and September.
Kim Jin-il, a professor of economics at Korea University, said, “It is not easy to come up with a solution to the overseas factors (of domestic inflation). “For inflation to end, expectations must be dampened,” he added. “It is important for the government to deliver consistent responses to wages and prices to the people.”
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