With consumer price inflation reaching its highest this year in two months, there are concerns that the fifth disaster aid to be paid ahead of Chuseok will further fuel inflation. This is because there was a precedent for the price of livestock and fishery products to rise after the government paid the first emergency disaster subsidy to all people last year. As shopping cart prices soared and more cash is available on the market, the pressure on inflation is growing.
Consumer price inflation recorded 2.6% in July
Petroleum 19.7%, livestock products up 11.9%
Food prices increased when subsidies were paid last year
Inflation fears due to rising raw material prices
According to the ‘Consumer Price Trend in July’ released by the National Statistical Office on the 3rd, the consumer price index last month was 107.61 (2015 = 100), up 2.6% from the same month of the previous year. It is the first time in two months since the increase rate in May (2.6%) was the highest in nine years and one month.
The rate of increase in the price of major agricultural and livestock products. Graphic = Reporter Kim Young-ok yesok@joongang.co.kr
There are three main factors that drove inflation last month. First of all, the price of personal services, such as summer vacation-related accommodation fees, rose 0.87 percentage points out of the 2.6 percent increase in the total. In line with the rise in international oil prices, the price of domestic petroleum products such as gasoline and diesel, which soared 19.7 percent from the same month last year, also raised the overall price by 0.76 percentage points. Agricultural and fishery products also contributed 0.76 percentage points to the increase.
In particular, the prices of agricultural, livestock and fishery products have been flying high due to worsening weather conditions such as the longest rainy season in history last year and the cold wave early this year and the spread of highly pathogenic avian influenza (AI). Last month, livestock products were 11.9% more expensive than the same month last year. Egg prices rose 57%, the highest in four years since July 2017 (64.8%). Pork and beef prices also rose 9.9% and 7.7%, respectively.
The government’s decision to provide disaster aid to 88% of the population may have a negative impact on prices. Unlike last year, when the consumer price inflation rate stayed in the 0-1% range and maintained a low inflation rate, now the 2% increase rate has continued for four months in a row.
Consumer prices by item in July. Graphic = Reporter Kim Young-ok yesok@joongang.co.kr
Kim So-young, a professor of economics at Seoul National University, said, “Recently, the spread of the novel coronavirus infection (COVID-19) is increasing, but the overall economy is gradually recovering and the economic growth rate of 4% is expected to be possible.” Inflationary pressures could increase.” Professor Kim analyzed, “If the disaster aid affects the cost of living, the low-income class will be hit relatively harder, and if consumption is not enough, money may flow into the asset market.”
In fact, in May of last year, when emergency disaster relief funds were paid to the entire nation for the first time, consumption of home-cooked ingredients increased, and the price of livestock products rose one after another. In June last year, the average price of Korean beef sirloin exceeded 100,000 won per kg for the first time, and the price of pork samgyeopsal soared 15.6% in mid-June compared to early May last year.
Although the government expects the inflation rate to slow in the second half of the year, the recent heat wave and rising international raw material prices have led to voices of concern about inflation. In a report released last month, the Bank of Korea said, “In the process of normalizing economic activity, inflationary pressure caused by demand-side factors may be greater than expected.” There is always the possibility that it will act as inflationary pressure as it coincides with increased demand.”
Sejong = Reporter Im Seong-bin im.soungbin@joongang.co.kr
