41% eggs, 38% green onions, 15% oil prices...The first half of 2022 is also extraordinary

The price index of agricultural and livestock products rose 8.7% in 2021, an indicator of basic food materials, compared to the previous year. This is the highest increase in 10 years. Rice (9.4%), eggs (41.3%), chili powder (19.1%), and green onions (38.4%) have not risen. To make matters worse, the prices of industrial products and services that make up the entire price along with agricultural and fishery products also rose to 2.3% and 2.0%, respectively. It depicts a steep upward curve in prices in all areas of society, except for the public sector, where the government holds prices, such as electricity and gas bills. An official from the National Statistical Office explained, "As prices of industrial products such as oil and processed foods, personal services, and agricultural and fishery products rose, the annual inflation rate was in the mid-2% range."

Prices of industrial products rose because of soaring oil prices. Oil prices rose 15.2% year-on-year due to high oil prices. Looking at the detailed items, gasoline and diesel rose 14.8% and 16.4%, respectively. In particular, oil prices rose 29.7 percent in November and 24.6 percent in December, despite the government's oil tax cut introduced in November. Analysts say that the government has even mobilized desperate measures to curb soaring oil prices, but there is a limit to suppressing the rise in international oil prices. In the service sector, the increase in personal service prices such as insurance premiums (2.6%) was large.

Excluding temporary factors on the supply side, the core price (exclusion index for agricultural products and petroleum products), which shows the trend of prices, rose 1.8%, the highest in six years since 2015 (2.2%). The living price index, called "feeling price," rose 3.2 percent by selecting items with high purchase frequency and expenditure, the highest increase since 2011 (4.4%).

The government said on the same day that it would mobilize all policies to stabilize prices in the new year, but the situation in high prices is expected to continue for the time being. Looking at the impact of individual items on the inflation rate in 2021, the contribution of agricultural, livestock and fisheries products and petroleum products reached 0.73% points and 0.60% points, respectively. Two items directly affected by international raw material prices and global supply chains account for more than half of all inflation factors, and there is a clear limit to controlling prices only with the authority's capabilities. The Bank of Korea recently said in a report titled "Checking the Operational Situation of Price Stabilization Goals" that "the upward risks" such as high rise in international raw material prices, prolonged global supply bottlenecks, increased consumption recovery, and rising inflation expectations are expected.

In fact, the trend of the food industry, which is sensitive to raw materials and logistics costs, shows that it is trying to raise the price of products sent to distributors further. It is expected that there will be more than 100 products whose prices will change from the first day of the new year. An official from the food industry said, "The news of the price increase is expected to continue for the time being because it is usually at the beginning of the year-end when consumers have the least price resistance."

Considering that major research institutes such as the Korea Development Institute (KDI) predict that global supply shortages will ease from the second half of the new year, inflation is expected to continue until at least the first half. The government also expects new year's prices to be a trend of high and low. Lee Won-won, the first vice minister of the Ministry of Economy and Finance, said, "Uncertainty is high, such as the spread of COVID-19, the development of the Omikron mutation virus, and the global supply chain," but added, "Consumer prices will continue to rise in the first half." Jeon Hyun-bae, an economics professor at Sogang University, said, "If the global supply chain problem is solved, inflationary pressure will also be reduced," adding, "However, supply chain factors will be gradually eased rather than suddenly resolved in the second half."

Some predict that inflationary pressure could increase as pent-up demand explodes due to the stabilization of COVID-19. Choi Byung-ho, an economics professor at Pusan National University, said, "Assuming the COVID-19 situation calms down, global demand factors can strongly affect prices," adding, "The current inflation trend is due to supply-side difficulties not being properly overcome, and if demand recovers, inflation pressure will increase."

Date: 2021-12-01

Reporter: 서화목