During the six-day Chuseok holiday, many people were taken aback by the increasing prices. The steep rise in the cost of fruits and vegetables led to more families simplifying or even omitting traditional ancestral rites preparations. Additionally, the higher dining costs and increased gas prices for visiting graves or going out made people more cautious about spending. The average price of a restaurant menu in Seoul, according to the Korea Consumer Agency's True Price, has recently exceeded 10,000 won. There are reportedly only four menu items that can be purchased for this amount, such as jjajangmyeon, gimbap, and kalguksu.
Following the Chuseok holiday, food prices and transportation fares, which have been held in check, are set to rise, adding to the burden of living expenses. Milk companies have already increased the prices of dairy products, including white milk, by 3 to 13 percent due to rising raw milk prices. There's a likelihood of a ripple effect on milkflation (milk + inflation), causing prices of processed foods like bread, cookies, and ice cream to rise subsequently. Starting from Saturday, the basic subway fare in the Seoul metropolitan area will go up by 150 won to 1,400 won, and Busan city bus fares will also increase by 350 won from Friday.
A significant concern is the international oil prices, which are on the brink of reaching 100 U.S. dollars per barrel. These prices, which had dropped to around 70 dollars earlier this year, have recently surged past 90 dollars following announcements from major oil-producing nations such as Saudi Arabia and Russia about extending production cuts. Wall Street forecasts that oil prices could even reach as high as 120 dollars within the year, raising fears of a second wave of inflation following the Ukraine War. In the Korean domestic market, gasoline prices have been steadily increasing for 12 consecutive weeks and are on the verge of surpassing an average of 1,800 won per liter.
Rising oil prices pose an even greater threat to the Korean economy, which is already grappling with a sluggish economic recovery. Domestically, high oil prices are directly linked to inflation, and this is likely to dampen private consumption and investment. On the international front, it could push the Korean economy into unfavorable conditions marked by a decline in global trade. Up until September, falling oil prices led to a scenario where energy imports dropped significantly, resulting in a "recession-like trade balance surplus" where imports decreased more than exports. However, this situation has now become precarious. With exports not yet fully rebounding, a surge in oil prices could potentially lead to a trade deficit, destabilizing the current account balance and impeding economic growth.
Amid concerns about soaring oil prices, the United States has taken stricter measures, and even the exchange rate has reached new highs, resulting in a simultaneous increase in three key factors: high prices, high-interest rates, and a strong exchange rate. This marks the first time in a year that all three factors have surged simultaneously, yet the protective measures in place to mitigate their impact remain inadequate. The underlying issue of excessive energy consumption persists, driven by recurrent fuel tax reductions and frozen electricity rates. Moreover, it is challenging to raise interest rates to counter inflationary pressures, given the substantial household debt and concerns of an economic recession. It is now crucial to abandon premature hopes of economic recovery, accept high oil prices and high inflation as constants, and actively seek crisis management solutions.