With Low Inflation, Companies Cautious... "Reducing Price Adjustment Frequency, Raising Prices Significantly at Once"

Bank of Korea 'Survey and Statistics Monthly Report'

[Asia Economy Reporter Kim Eun-byeol] It has been found that as the current low inflation situation continues, companies are reducing the frequency of price adjustments for their products. Instead, when they do adjust prices, they tend to make large-scale changes.

On the 27th, the Bank of Korea analyzed the price adjustment behavior of individual companies according to the level of inflation in its "Survey and Statistics Monthly Report." The report stated, "The lower the level of inflation, the more companies tend to reduce the frequency of price adjustments while increasing the magnitude of those adjustments."

Using weekly price data from the Korea Consumer Agency from 2014 to September 2019, the Bank of Korea analyzed trends in companies' product price adjustment frequency and magnitude. The analysis showed that since 2015, the frequency of price adjustments has decreased. This decline accelerated further in 2019.

The proportion of products with price increases or decreases averaged 27.8% per month in 2014 and 29.4% in 2015, but fell to 22% during January to September of last year. Conversely, in 2014, the average monthly price increase per adjustment was 8.5%, but from January to September last year, it rose sharply to 18.9% per adjustment.

A Bank of Korea official explained, "The analysis results show that in a low inflation environment, companies tend to delay reflecting cost increases and other price hike factors in their prices, but when they do adjust prices, they make large-scale changes."

As low inflation persists, frequently raising product prices could provoke consumer backlash, so companies appear to reduce the number of price adjustments and instead raise prices significantly at once. The Bank of Korea stated, "The fact that inflation conditions affect companies' price adjustment behavior is an example that microscopically supports the possibility that changes in the relationship between the economy and inflation are occurring, such as a reduced impact of economic conditions on inflation."

This content was produced with the assistance of AI translation services.