Soaring Oil Prices to Raise Consumer Prices

Kim Ok-seon, 50, a housewife living in Seongdong-gu, Seoul, visited Jungang market in Shindang-dong, Jung-gu in Seoul, to buy groceries. However, she could not buy anything for more than 30 minutes. She said, “I went there to buy groceries, but I hesitated to buy them due to the recent price hike.”

Consumer prices soared. For example, red pepper price has recently jumped to 4,000~5,000 won per 400g, up from 2,000 won early last year. As oil price hike increased the heating cost of the greenhouses, the original price set by the farmers surged.

○ Consumer Price Suffers from Skyrocketing Oil Price

The price of vegetables harvested in the greenhouses that are sold in the large-sized discount stores and department stores are not different.

According to E-Mart, prices of two cucumbers increased from 1,120 won in November last year to 1,200 won. The price of unripe red pepper reached 2,490 won in January, advancing from 1,790 won in last November. Two eggplants, which were sold at 1,450 two months ago, now cost 1,790 won. At Lotte Mart, the price of three cucumbers increased from 1,200 won to 2,230 won over the same period.

Kim Jae-gyeong, a manager of intermediary distributor Hwashin Farm in Miryang, South Gyeongsang Province, said, “Auction price of Cheongyang red pepper increased from 40,000 won per 10kg box in January 2007 to 85,000 this year.” He added, “Heating cost accounts for 20 to 30 percent of the cost required to grow vegetables in greenhouses, and oil prices have recently soared. That’s why some farmers give up growing vegetables.”

○ Consumer Prices to Increase

Prices of snacks and dairy products such as ice cream and milk have also increased. The price hike has been attributed to surging prices of imported raw materials and rising shipping and logistics cost driven by oil price spike.

According to the confectionary industry, Lotte Confectionery increased the price of a Dream Pie box from 2,800 won to 3,000 won. Haitai Confectionery and Food decided to raise its Egg Snack price soon from current 700 won to 1,000 won. The domestic confectionery industry is considering raising prices of most products by 20 to 30 percent by March 2008.

Prices of instant noodle products are expected to increase, following the flour price hike in last December. At discount stores, CJ Cheiljedang’s all-purpose flour now sells for 4,470 won per 3kg, up 28.8% from 3,470 won. The domestic instant noodle makers including Nongshim, Samyang Food, and Korea Yakult are also considering raising noodle prices. Also, many Chinese restaurants in Seoul have already increased the price of Jajangmyeon (noodles with stir-friend bean paste) by 500 won from 3,000 won to 3,500 won.

○ Deteriorating Consumer Confidence and Worries over Inflation

Amid a series of price increases, some consumers have even shown signs of hoarding.

Kim Sung-hwan, store manager of E-Mart Eunpyeong branch, said, “For a week after the news forecasting that instant noodle price will increase due to growing flour price broke out, Nongshim’s instant noodle, Shin Ramyeon, was sold out.”

Economic experts worry that price uncertainty may aggravates consumer confidence and bring about economic uncertainties and inflation.

“The government’s focus on growth policy without an effective price stabilization package could spur price uncertainty. Price increase dampens consumers’ purchasing power and it will cause employees to raise their voice for wage increase,” said Chang Jae-cheol, a researcher from Samsung Economic Research Institute.

swon@donga.com