The recent decline in the inflation rate does not necessarily mean a reduction in living expenses. It indicates that the pace of additional burdens from already increased prices is slowing down. In October, the consumer price inflation rate was 2.8%, down 0.1 percentage points from the previous month. However, the cumulative inflation rate from January to October this year stands at 2.7%, exceeding the government's annual forecast of 2.6%.
If salaries or pensions do not increase in line with inflation, the purchasing power of the same amount of money diminishes. Households may need to cut back on savings or forgo dining out and cultural activities to manage their expenses. Families with a higher proportion of unavoidable costs, such as food, transportation, and heating, have fewer options.
It is also important to examine the disparities among individual items hidden behind the average inflation rate. In October, the price of petroleum products rose by 14.9%, while processed food prices increased by 2.9%. The rise in fuel prices does not stop at gas stations; it raises transportation costs and energy expenses for manufacturers, which can subsequently affect the prices of processed foods and dining out.
High inflation is also linked to interest burdens. The core inflation rate, excluding food and energy, has reached 2.8%. This context is why the Bank of Korea is keeping the possibility of further tightening open. A 0.1 percentage point increase in inflation does not immediately lead to a corresponding rise in the benchmark interest rate. However, if inflationary pressures persist, it may become difficult to ease the tightening stance, prolonging the interest burden for households and self-employed individuals with loans.
We must also consider the costs involved in controlling inflation. Relying solely on interest rates to address burdens from supply shortages and rising import costs could significantly impact consumption and investment. The government should work to alleviate bottlenecks in supply and distribution, while the Bank of Korea must assess both the sustainability of inflation and the conditions for growth and financial stability.
The government should coordinate the timing of agricultural and fishery product shipments during the kimjang season and monitor whether discount support translates into actual price reductions. It is also necessary to examine the costs and margins in the import and distribution processes to prevent unjustified price increases. When production costs decrease, it is essential to verify whether those savings are passed on to consumer prices.
Maintaining price controls and discount events over an extended period also incurs financial costs. The duration and expenses of support should be disclosed, and rather than providing uniform assistance, vulnerable groups facing difficulties with food and energy expenditures should be more robustly protected. Simply suppressing consumer prices while leaving production and distribution issues unaddressed could lead to supply shortages or subsequent price surges.
The annual inflation rate of 2.6% is the government's projected figure. If the likelihood of exceeding this forecast has increased, the reasons and response strategies should be communicated to the public. At the same time, it is crucial to assess how much the actual expenditure burden on essential goods has decreased for vulnerable households. Stabilizing prices is about ensuring that citizens' salaries and pensions retain their value.
* This article has been translated by AI.
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