Editorial Notes

More effective measures necessary to combat soaring prices: Korea Herald

The paper says more effective measures are needed to tamp down soaring utility bills and inflation.

Shoppers walk through a market in Seoul on Nov 26, 2020. PHOTO: AFP

SEOUL - Soaring energy bills, led by gas and electricity, are hitting South Korean households, already saddled with rising interest rates and stubbornly high inflation that erode into disposable income amid few signs of an economic recovery.

The latest energy price figures released on Sunday by the Korean Statistical Information Service show how big increases have been seen in the prices of essential utilities such as gas and electricity in a year – and are an indicator of how painful it must be for South Koreans forced to tighten their belts to pay for rising bills.

The public utility price index – calculated based on the consumer price index that is considered an inflation barometer – logged 135.75 points in January, up 31.7 per cent from a year earlier.

The January index marks the highest increase in monthly energy prices since April 1998, when the country was in the midst of the Asian financial crisis.

Electricity prices jumped 29.5 per cent year on year in January, with gas prices climbing 36.2 per cent and heating prices seeing a 34 per cent rise during the same period.

The mix of electricity, gas and heating price hikes is already translating to shutdowns in certain businesses that have so far relied on relatively affordable utility bills. A growing number of public bathhouses are struggling to pay for soaring heating bills that threaten to wipe out their profits.

Some public bathhouses have already shuttered due to the high energy bills, local media outlets reported.

Internet cafes are also hit by the burdensome increases in electricity rates.

Internet cafe owners complain that deficits are only increasing, even though they are sacking part-time workers and raising hourly rates for customers.

In a survey of 1,811 small-sized business operators, 85.1 per cent of respondents said their revenues have declined, and 99 per cent said high energy bills have placed burdens on their businesses, the Korea Federation of Micro Enterprise said on Friday.

Faced with continued hikes in energy rates, 8.1 per cent said they have considered shutting down their businesses or suspending operations until prices become more stable.

But the upward trend of utility prices is far from over.

The state-run Korea Electric Power Corp raised the electricity rate 9.5 per cent in January compared with the previous quarter.

Korea Gas Corp froze the gas rate in the first quarter of 2023 amid a flood of complaints from households and companies who saw their heating bills skyrocket, but is likely to raise it again as early as April.

Korea Gas Corp and government officials claim that gas price hikes are inevitable in consideration of the state-run company’s snowballing operating deficit, which stems largely from the higher international prices of liquefied natural gas.

Given high utility bills and price hikes in other key items, it is hardly surprising that the country’s consumer prices, a key gauge of inflation, rose 5.2 per cent in January from a year earlier, according to the data released by Statistics Korea on Thursday.

Inflation is certainly slowing down after it peaked at 6.3 per cent in July 2022, but it still remained above 5 per cent for the ninth straight month in January - far higher than the Bank of Korea’s inflation target of 2 per cent.

Some experts have raised questions about whether the Bank of Korea should remain more vigilant about inflation risks going forward. On Jan 13, the central bank raised its policy interest rate by 25 basis points to 3.5 per cent, without making a reference to the need for more interest rate hikes. This sparked speculation that the rate-hike campaign might have ended.

But it remains to be seen whether the central bank can keep the rate unchanged in the coming months.

Last week, the United States Federal Reserve raised interest rates by 0.25 percentage point to a target range between 4.5 per cent and 4.75 per cent. As a result, the interest gap between the two nations is now 1.25 percentage points, and it may widen further if the Fed opts for more hikes. The interest rate gap, if left untouched, could raise volatility regarding capital flight and the South Korean currency.

Given the pernicious impact of soaring energy bills and high interest rates, policymakers should consider drawing up more effective policy measures to help households and companies, while preventing utility price hikes from going overboard. THE KOREA HERALD/ASIA NEWS NETWORK

  • The paper is a member of The Straits Times’ media partner Asia News Network, an alliance of 22 news media titles.

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