Rising utility bills, food costs fan inflation fears

The government is considering raising public utility prices in the coming months to correct the growing deficit by major public corporations plagued by rising raw material and production costs.

Burdened by rising prices in grain, sugar, corn and wheat, food makers are also expected to raise the prices of processed foods in the second half.

Seoul is mulling raising subway fares by 300 to 400 won after freezing them for more than four years. The local governments of Incheon, Busan, Daejeon and Ulsan have also been considering a raise of 10 percent in the second half of this year.

“A lot of public energy firms have been suffering from increased production costs due to rising raw material prices and this has to be normalized,” Vice Finance Minister Yim Jong-ryong said at a policy meeting Monday.

“We will, however, minimize the increase and enforce it across many different steps.”

Since January, public utility costs have been held down and tariffs have been cut for staple foods in what the government called a “war against inflation.” The government plans for a major round of increases on public electricity bills, by up to 16 percent from July onwards.

The Korea Electric Power Corp. says it needs to raise the price by 16.2 percent to meet break point.

Inflationary pressure on food is moving from prices of raw materials to processed food.

Among 70 processed food items sold at major retailers, 56 rose in value. In the past month alone, the price of dried squid was up by 48 percent. The increase for ice cream was 30.6 percent on average, and chili pepper paste, tofu and curry rose by 20.5 percent, 19.1 percent and 15.6 percent.

The Korea Development Institute, the country’s most influential state-think tank on Sunday raised its inflation outlook to 4.1 percent from the previous outlook of 3.2 percent. The upward adjustment sits above the government’s target rate of 3 percent range.

The agency attributed the raise to uncertainties over soaring crude oil prices crucial for energy needs of the country’s manufacturing and service sector. It forecast crude oil to stay at $105 per barrel this year, up 35 percent from last year.

“Over the near term, (policymakers) need to strengthen efforts to stabilize consumer prices such as moves to normalize interest rates,’ its report said, referring to the central bank’s drive to return rate policy back to a pre-2008 crisis mode.

By Cynthia J. Kim (cynthiak@heraldcorp.com)