Money Today Sejong = Reporter Yoo Jae-hee | 2023.02.26 08:02
[MT리포트] Article 33 The defect bomb exploded ②
Editorial comment | On the 24th, KEPCO revealed its performance last year, including a deficit of nearly 33 trillion won. Last year’s report card shows the dramatic increase in international energy prices following the long war between Russia and Ukraine and consumer price bombs that failed to reflect costs in a timely manner. The fallout from the failure of KEPCO, a public corporation that supplies only domestic electricity, does not stop inside KEPCO. KEPCO faces capital erosion We examined the ripple effect of KEPCO’s default bomb spreading to the real economy and the financial investment market.
As additional electricity rate hikes became inevitable this year, uncertainty in the government’s economic growth also increased. Meanwhile, major domestic and foreign institutions have lowered their forecasts for Korea’s economic growth rate, citing a contraction in consumption due to increases in public utility bills as a factor.
Unlike this year, which aimed for an ‘up and down’ economic flow based on price stability, the Yoon Seok-yeol government’s economic team may run into a dilemma. Considering KEPCO’s deficit of 33 trillion won, an immediate rate increase is inevitable, but in terms of the economy and people’s livelihood, there is a lot of thought over that point.
According to related ministries and agencies on the 26th, the Bank of Korea lowered its forecast for Korea’s economic growth rate this year from 1.7% in November to 1.6%. The outlook of domestic and foreign institutions for this year is in a downward trend. △IMF (International Monetary Fund) 2.0% → 1.7% △ Korea Economic Research Institute 1.9% → 1.5%.
They cited the slowdown in consumption growth due to the uncertainty in the price flow as the reason for lowering the growth rate forecast. Central to it is an increase in public utility rates. On this day, as KEPCO announced last year’s deficit of 33 trillion won, an additional increase in public utility rates came to make up for it inevitably.
Recognizing the need for an electricity rate hike, the government’s economic team showed a temperature difference in terms of timing and magnitude.
Trade, Industry and Energy Minister Lee Chang-yang said that it is not desirable to freeze electricity and gas rates for the next quarter, and that gradual price normalization is necessary. Deputy Prime Minister and Minister of Strategy and Finance Choo Kyung-ho said the deficit problem should be resolved through rate hikes, even if it takes a certain amount of time. However, he left room for energy bills, saying the public burden should be considered first.
Electricity rates are set by the Ministry of Industry on a quarterly basis, but must go through consultation with the Ministry of Strategy and Finance, the price authority, in the process. In fact, if the Ministry of Finance exercises its right of veto, the rate increase cannot be realized.
The Ministry of Strategy and Finance is struggling to raise rates due to the economic contraction and the burden on people’s livelihoods. In particular, the price burden is an issue that leads to a reduction in the real income of the people. When real income falls, consumption, a major axis of economic growth, inevitably shrinks.
According to the Office for National Statistics, real income per household in the fourth quarter of last year fell by 1.1% compared to the same period last year. This is because consumer prices rose to the 6 percent level last year, and consumption increased. In particular, electricity, gas and water rates increased by 12.6% from the previous year due to public utility rate increases last year, raising overall prices. The situation is the same this year. Public utility bills rose by 28.3 percent in January. This is considered to be the factor that caused the price increase (5.2% in January) to rebound for the first time in three months.
The Bank of Korea also pointed to increases in public utility rates as a major variable in inflation this year. In the economic forecast published the previous day, it was analyzed that “the accumulated cost increase pressure is gradually reflected in public utility bills, and there is a possibility that a secondary ripple effect (of prices) will appear.”
Variables have increased in the government’s response to the economy. This is because it has to manage the inflationary pressures centered on public utility payments and start stimulating the economy. In addition, the fact that electricity rates increase the cost burden across the industry is also a burden. This is a factor that will limit production and private investment and increase product prices due to a general increase in costs.
There is a way for the government to increase fiscal expenditure in order to boost the rate of economic growth, but if it increases expenditure urgently in the face of inflation, criticism of ‘policy mismatch’ may come out.
Ha Joon-kyung, an economics professor at Hanyang University, said, “If international energy prices stabilize in the second half of the year, we will be able to control prices by raising rates at least gradually.” There is a lot of uncertainty as to what will be possible,” he said.
Cheon So-ra, director of economic forecasting at the Korea Development Institute (KDI), said, “An increase in the public utility rate may cause high prices and secondary high interest rates to dampen consumption,” but added, “We have reached a point where we we can delay the hike, so we have to adopt a gradual increase,” he said. “As rate hikes stimulate expected inflation, communication between economic response and monetary policy appears to be necessary,” he said.
[저작권자 @머니투데이, 무단전재 및 재배포 금지]
