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Cigarette price hike fans inflation jitters

Philip Morris International Korea’s recent plan to raise its cigarette prices is fueling concerns over inflation as rumors swirl that its bigger rival KT&G will soon follow suit.

The Korean unit of the U.S. tobacco giant is to slap an unexpected price increase averaging 6.8 percent starting Feb. 10 to offset rising raw material and labor costs.

The hike, the first in seven years, will send the prices of Marlboro, Parliament and Lark to 2,700 won ($2.4) a pack from the current 2,500 won. Virginia Slims, a super-slim cigarette brand, will be sold at 2,900 won per pack, up 100 won from before.

The PMI’s decision comes seven months after its competitors -- British American Tobacco Korea and Japan Tobacco International Korea -- raised the prices of their flagship products by 200 won.

The focus is now turning on KT&G Corp., the country’s largest tobacco manufacturer that controls nearly 60 percent stake in the domestic market.

KT&G officials told The Korea Herald on Thursday they are “looking into a possible price raise from multiple aspects,” adding that they will make their decision shortly.

Smokers and some public officials fret that an additional hike may undermine the government’s efforts to contain inflation, which is already under pressure amid steep rises in food and fuel prices, as well as public service fees.

Analysts said the three foreign firms provided KT&G for incentives to follow suit but the Seoul-based firm remains hesitant due to the likely negative impact on consumer prices, weighing heavily on low-income earners. Criticism also lingers over tobacco firm’s high profit margins believed to hover between 20 percent and 30 percent.

“KT&G now can chase two hares at once,” said Chung Hye-seung, an analyst at HMC Investment & Securities. “It has both chances to boost its market share given recent hikes of foreign products and to increase its own cigarette prices together with the by the predecessors.”

A packet of cigarettes costs between 2500 won and 3000 won in Korea, one of the lowest among OECD nations. The country’s smoking rate among men is around 39 percent.

KT&G shares edged up 0.51 percent to close at 78,100 on Thursday.

By Shin Hyon-hee (