Soaring Int`l Grain Prices Stoking `Agflation` Fears

The rise in international grain prices is leading to fears of “agflation,” or inflation in the prices of agricultural goods needed for daily life.

The average price of raw sugar in this year’s first seven months jumped 15 percent from a year ago. That of seasoned flour mix made from wheat grew 11.3 percent and that of edible oil made of soybeans rose 16.3 percent.

The price of instant noodles increased 4.3 percent; that of dry noodles 7.1 percent; biscuits 26.1 percent; bread 7.7 percent; and tofu 4.7 percent. The rises are far higher than the Bank of Korea’s target range of 2.5 to 3.5 percent between 2007 and this year.

High inflation has hit not only processed foods made from imported ingredients but also domestically grown produce. From January to July this year, the price of rice jumped 4.4 percent from the previous year and those of lettuce and cucumbers soared more than 20 percent.

The prices of processed foods and domestically grown produce account for 10 percent of national inflation. Nevertheless, they significantly affect the cost of living as perceived by consumers since they are daily necessities and indirectly raise prices of industrial goods.

Steep rises in the prices of gasoline, transportation fares and clothing are also raising the burden on daily life in Korea.

According to Opinet, a Web data provider of oil prices run by the Korea National Oil Corp., the average price of gasoline has stayed around 1,600 won (1.29 U.S. dollars) per liter in Seoul. This month, the price of propane gas used mainly at homes has climbed 11.2 percent from last month.

Taxi fares rose 500 won (40 cents) in Seoul in June and 400 won (32 cents) in Gyeonggi Province this month. Electricity costs have risen 3.9 percent on average from June 27 and gas bills have jumped 7.9 percent.

With airlines set to raise fuel surcharges next month, roundtrip airfares for international flights will rise up to 57,000 won (46 dollars). Fuel surcharges for domestic flights will see a lower rise of 3,300 to 4,300 won (2.60 to 3.50 dollars).

With living expenses soaring, the Strategy and Finance Ministry will release the retail prices of certain processed foods and industrial goods and utility fees on its homepage by the end of the year.

“No measures can be taken by the government immediately, but we’ll come up with countermeasures while closely monitoring prices of raw materials and industrial goods,” a ministry official said.

legman@donga.com peacechaos@donga.com