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Consumer Inflation Outpacing Production Cost Hikes

Posted June. 19, 2008 03:20,   


With no end in sight to rising inflation, the expectation of higher prices is rearing its ugly head as the prices of certain goods and services are rising higher than production costs.

If this trend spreads, consumer inflation will grow more rapidly than global raw material prices and prove a heavy burden on the people. To prevent this, the government is striving to rein in excessive inflation.

According to May data released by the National Statistical Office yesterday, the cost of food at restaurants rose 3.6 percent, that of black bean noodles or “jajangmyeon” 12.3 percent and that of pizza 11.1 percent between the end of last year and May. These hikes reflected a 36.7-percent rise in flour prices over the same period.

The problem is that the prices of certain foods not requiring flour also sharply rose. The price of sushi rolls rose 16.1 percent and that of fried rice 8.7 percent over the same period, but that of rice, the main ingredient in both foods, rose a meager 1.3 percent.

One Chinese restaurant owner said, “I have raised my menu prices between 500 and 1,000 won. The production costs of certain foods have grown by a large margin and others by a small margin, but considering rising wages, I have decided to raise my prices overall.”

Authorities tasked with cooling inflation said more businesses will raise prices on goods and services at a rate higher than production cost hikes due to expectations of inflation.

“Quite a few items are seeing inflation though they are unaffected by higher import bills,” said Bank of Korea Governor Lee Seong-tae. “We should calm down inflation expectations.”

A recent study by the central bank found that the prices of certain items grew faster than hikes in production costs. “We will review inflation based on production costs,” said a central bank official.

The Fair Trade Commission has also launched an investigation by designating five industries closely related to the people’s livelihood as needing intense monitoring. The five are oil, mobile communications, private education, cars and medicine.

The probe aims to find unfair practices and encourage price reductions. The anti-trust watchdog has also investigated noodle manufacturers on allegations of price fixing. The companies raised noodle prices 15-16 percent from February to April, citing high flour inflation.

The commission’s chairman Baek Yong-ho said at a seminar, “We will closely monitor price fixing in areas affecting low-income households such as oil and private education, and in steel and petrochemicals, which greatly influence national competitiveness.”