Measures include tariff cuts, crop and housing supplies
The government plans to cut food tariffs, increase crop supplies and freeze public service costs in what it calls a “war against inflation.”
A pan-government task force headed by the Finance Ministry on Thursday reported to President Lee Myung-bak a package of measures to rein in skyrocketing food, energy and home rental costs that are threatening a feeble economic recovery and squeezing budgets of low-income families.
Experts doubt whether the measures, focusing on price controls, would be able to stem inflation caused by hikes in international raw materials costs.
The government’s strong show of resolve would have a measure of symbolic effect but its impact is also seen to be limited because it was already made public in recent weeks, they said.
The government plans to expand tariff cuts from the planned 67 items and monitor price moves of products used widely by the low- to middle-income classes.
It also plans to increase the release of the reserved crops from the national granary during the March-April period when supply tends to be short.
It decided to increase the supply of new apartments earlier than planned and rent out unsold properties of state-run construction companies to low- to middle-income classes.
“We will put the first half’s top policy priority on price stability and do everything we can do to fight inflation. Macroeconomic policies will be aimed at strengthening price stability and will be flexible in accordance with economic and job market conditions,” government ministries said in a joint statement.
The measures were announced after the Bank of Korea unexpectedly raised its benchmark interest rate by 25 basis points to 2.75 percent earlier in the morning, showing inflationary pressure as a major policy challenge.
President Lee Myung-bak has stressed that the inflation rate should stay at the three percent target this year despite soaring oil, sugar and flour prices abroad and Seoul’s five percent growth target.
The administration will pressure universities to freeze their tuition fees and minimize hikes in public utilities such as electricity, transportation and mailing.
“For the economy’s stable growth ... price stability should be maintained, but onshore and offshore factors for price stability are more formidable this year than before,” the joint statement said.
Policymakers have been on high alert to tame inflation after Asia’s fourth largest economy bounced back strongly from the economic crisis of 2008-9 and is expected to have pulled off 6.1 percent growth in 2010.
One of the fastest recoveries among major economies, however, came with uneven price increases across food, oil and rents, spurring the central bank to raise the benchmark interest rate twice last year.
The BOK expects the inflation rate to expand to 3.5 percent this year from 2.9 percent.
“Soaring global raw material costs, housing market, European financial crisis as well as North Korea risk brings a lot of uncertainties to the economy. Pre-emptive steps need to be taken but price control would be tougher this year than 2010,” Finance Minister Yoon Jeung-hyun told reporters Thursday.
This month onwards, tariff cuts on sugar, coffee beans, powdered milk and flour will be in place to reduce the burden on importers facing spiking crop prices abroad. The Finance Ministry is considering giving incentives to companies actively participating in the price control campaign.
The Agricultural Ministry will double the supply of agricultural and stockbreeding from last year. A total of 5,000 metric tons of napa cabbages will be released from the national granary in March to prevent the recurrence of Kimchi crunch the country had in November during the Kimchi making season.
Seoul plans to give out incentives to local governments performing well in price control and punish price collusion in the private sector.
During the meeting President Lee instructed his government Thursday to closely monitor domestic oil prices.
“In the case of oil prices, which affect prices of various commodities, (the government) needs to closely check the fluctuations in (international) oil prices and exchange rates and review whether they are at an appropriate level,” Lee was quoted as saying by his spokeswoman Kim Hee-jung.
The Ministry of Knowledge Economy put forward a plan to curb further oil price inflation and energy consumption.
To monitor the reasonableness of oil prices at local gas stations, the ministry said that it has adopted a bill requiring gas stations to locate price banners within a 5 meter-radius from the entrance where they can be easily seen by drivers.
It said it will also provide consumers with more channels such as websites to compare local oil prices those of overseas.
Alongside reinforcing oil prices monitoring in the country, the ministry intends to initiate fiercer competition among local gas stations, hoping this could bring down the price, officials said.
To this end, the government that it will ease regulations to allow more discount stores to operate gas stations in the country’s metropolitan cities, it said.
It said it will also offer more financial subsidies for gas station owners who switch facilities to self-service ones beginning July.
To reduce energy consumption, the ministry said it will adopt diverse measures depending on international oil price and the country’s power reserve levels.
The government will regulate indoor temperatures and adjust outdoor lightings should the benchmark Dubai Crude Oil surpasses $100 per barrel, the ministry said.
The Dubai Crude Oil rose to a new record-high $94.23 per barrel for the first time in 27 months as of Wednesday, according to the state-run Korea National Oil Corp.
For private firms, the government said it will boost regulations to control their carbon emissions and make them adopt more high-efficiency, clean machineries in the long-term.
By Cynthia J. Kim and Koh Young-aah