SEOUL, August 13 (AJP) - South Korea can still look remarkably cheap to someone arriving from New York or Berlin. For Koreans earning and spending in won, it increasingly does not feel that way.
Years of rising prices have made more spending discretionary as household incomes struggle to keep pace, squeezing what remains after necessities. Yet for visitors earning dollars or euros, a restaurant bill or cab fare in Seoul can still look like a bargain.
A three-course meal for two at a mid-range restaurant costs about $140 in New York, compared with 92,500 won ($65) in Seoul, according to Numbeo, the crowdsourced global cost-of-living database. Numbeo puts a mile of standard taxi travel at about $3.50 in New York against 1,327 won in Seoul, excluding the starting fare.
Miki Vranjes is spending a month in Korea partly because of that price appeal.
"You should see how expensive things are in Germany," he said. "The price for anything in Germany is insanely high."
Fresh from her previous stop in Tokyo, Cortney Haze sees less of a bargain.
"I don't think I find prices for anything in Korea extraordinarily cheap compared to the United States or even Japan, to be completely honest," she said. At some restaurants, she noted, burgers can run above $10.
The exchange rate explains part of the divide.
The won weakened sharply during the first half of the year, with the dollar-won rate averaging above 1,530 around the end of June. It has since recovered to around 1,422 won per dollar, strengthening roughly 7 percent from that level. Even after the rebound, the exchange rate continues to make many Korean prices look relatively low when converted into dollars.
That distinction — cheap after currency conversion versus affordable on a Korean paycheck — runs through the numbers.
The Middle East war added another burst of inflation this spring as energy costs surged. OECD-wide inflation climbed to 4.6 percent in May as energy inflation reached 15.8 percent, before headline inflation eased to 4.2 percent in June. The OECD has said the conflict has pushed up energy and other input prices while squeezing real incomes.
Korea's consumer inflation slowed to 2.8 percent in July from 3.2 percent in June, helped by falling petroleum prices. U.S. inflation similarly eased to 3.4 percent in July from 3.5 percent in June and 4.2 percent in May. Germany moved the other way last month, with inflation rebounding to 2.8 percent in July from 2.3 percent in June.
Cheap compared with where?
The OECD's comparative price data broadly support the impression that Korea remains inexpensive relative to many advanced economies.
Its monthly comparative price levels measure the cost of a representative basket of consumer goods and services using purchasing-power estimates and market exchange rates. That means currency swings can change the comparison even when domestic sticker prices do not.
Rebasing the OECD's May figures to make each comparison country equal to 100 puts Korea at about 71 against Germany and 58 against the United States. Against Japan, Korea stands much closer, at about 93.
That makes Haze's reaction understandable. Korea looks substantially cheaper beside Germany or the United States, but much less so
after a stop in Japan.
Individual purchases make the point even more vividly.
A Big Mac in Korea costs 5,700 won, after McDonald's Korea raised prices in February. In Japan, McDonald's currently lists one from 500 yen. Korea's Big Mac is therefore actually more expensive in dollar terms at current exchange rates — roughly $4 versus a little over $3 in Japan.
Taxi fares tell a different story. A standard Seoul taxi starts at 4,800 won for the first 1.6 kilometers, then adds 100 won for every 131 meters. In Berlin, the base fare is 4.30 euros, followed by 2.80 euros per kilometer for the first three kilometers.
When income does not keep up
Lee Dong-hyun, a 35-year-old office worker in Seoul, said a familiar joke among his friends — that prices rise every year while salaries barely move — has become increasingly difficult to laugh about.
"I feel like I work all day at the office, doing a lot but somehow accomplishing nothing, and at the end of it there's nothing left in my bank account," he said.
His routine is mostly work and home, with money going to meals, coffee, dinner and exercise. Even without large purchases, Lee estimates he spends around 2 million won a month.
He has considered cooking more often, but groceries do not feel particularly cheap either.
Official household data explain why the squeeze persists even as headline inflation eases.
Average monthly household income rose 2.4 percent from a year earlier to 5.481 million won in the first quarter. After inflation, real income increased just 0.4 percent.
Consumption spending, meanwhile, jumped 5.3 percent to 3.105 million won, or 3.1 percent in real terms. The average household surplus fell 3.1 percent to 1.239 million won.
And the latest wage data suggest the squeeze has not disappeared. Real wages fell 1.4 percent in May, the second consecutive monthly decline, as inflation outpaced nominal pay growth.
That is why slowing inflation does not necessarily feel like falling prices. It means prices are rising more slowly from levels that households already regard as high.
For a visitor converting dollars or euros, Korea can therefore remain relatively inexpensive.
For a Korean worker measuring those same prices against a paycheck, the arithmetic can look very different.
AJP Takeaways
• Korea remains considerably cheaper than the U.S. or Germany on broad international price comparisons, although its gap with Japan is much narrower.
• Exchange rates amplify Korea's apparent cheapness for foreign visitors, even after the won's roughly 7 percent rebound from its late-June lows.
• Korean households face a different equation: real household income rose just 0.4 percent in the first quarter while consumption spending climbed 5.3 percent and household surpluses fell.
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