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[Editorial] Price debacle

More effective measures needed to tamp down soaring utility bills and inflation

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 Sunday by the Korean Statistical Information Service shows how big increases have been made for the prices of essential utilities such as gas and electricity in a year -- and is an indicator of how painful it is for Koreans 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 percent 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 percent on-year in January, while gas and heating prices climbed 36.2 percent and 34 percent, respectively, 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 percent of respondents said their revenue declined and 99 percent said high energy bills have placed burdens on their businesses, the Korea Federation of Micro Enterprise said Friday.

Faced with continued hikes in energy rates, 8.1 percent 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 by 9.5 percent last month, compared with the previous quarter. Korea Gas Corp. froze the gas rate in the first quarter 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 that stemmed 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 percent last month 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 percent in July last year, but it still stayed above 5 percent for the ninth straight month in January -- far higher than the Bank of Korea’s inflation target of 2 percent.

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 percent, 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 US Federal Reserve raised interest rates by 0.25 percentage point to a target range between 4.5 percent and 4.75 percent. 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 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.

By Korea Herald (