Korea’s inflation signals the end of cheap living

After completing my overseas correspondent assignment, I returned to Korea for the first time in three years and immediately felt poorer. Prices have soared. Lunch near the office now costs more than 10,000 won per person, whereas three years ago it was easy to eat for 6,000 to 7,000 won. A carton of 15 eggs I often bought has climbed from 7,500 won to 9,500 won. A two-bottle set of milk rose from 6,300 won to 7,100 won, with the first digit on the price tag changing. When I said I was stunned by how high prices had become, people around me were even more surprised. They had not felt the surge in costs as sharply as I had.

Checking the official statistics, this seems understandable. Last month the consumer price index was 7.2 percent higher than three years ago. But the annual pace of increase has slowed over time. Three years ago, yearly inflation reached 6.3 percent, while this year monthly inflation has stayed around 2 percent. Had I remained in Korea, I likely would not have noticed the change so clearly.

Inflation is not always harmful. When prices rise, debtors face less real burden, and companies find it easier to borrow and invest in tangible assets, which can support growth. Economists call this the Mundell-Tobin effect.

But in today’s era of near-zero growth, high inflation is devastating. On Aug. 22, the government projected this year’s economic growth at 0.9 percent, raising fears that stagnation could become entrenched. With wages rising little while prices surge, people inevitably grow poorer. Many studies show low-income households are especially vulnerable to inflation. When incomes are unstable but food, heating, and other essential costs increase, even survival becomes difficult.

The greater concern is that high inflation appears to be becoming the new normal. Major economies are signaling low interest rate policies to spur growth, while higher tariffs are expected to drive up import prices. Heat waves and heavy rains have damaged crops, cutting food supplies and sending prices even higher. As climate change worsens, such patterns are likely to become routine. The era of inexpensive consumption seems unlikely to return.

When criticized about inflation, the government often responds that “high prices are a global phenomenon” or that “the causes are complex and hard to solve.” Both statements are true. Inflation rarely has a quick fix. But at the very least, the government should refrain from policies that fuel it. This is why money-printing measures are particularly troubling.

To boost domestic demand, the government plans to spend 12.2 trillion won of state funds on “consumer coupons for household recovery.” Next year’s budget is projected to exceed 700 trillion won for the first time, reaching nearly 730 trillion won. The intent is to sow fiscal seeds to grow the economy.

It is reasonable to use fiscal resources to expand supply capacity, such as energy facilities or housing construction. But if too much is spent on one-time cash handouts, it only accelerates inflation. Pumping out money may briefly fatten wallets but ultimately thins them as prices climb. With government debt also increasing, inflationary pressure is even more worrisome. In June, the Korea Institute of Public Finance reported that a 1 percent rise in government debt can lift consumer prices by up to 0.15 percent.

The government should focus on planting fiscal seeds in new industries that, even if slow to yield, can lay the foundation for growth. Otherwise, rising prices will leave ordinary people poorer, while weaker consumption will slow the economy further. Instead of fueling expansion, fiscal seeds could ignite an even greater crisis.