The Bank of Korea: "Government Welfare Policy Strengthening Lowered Consumer Prices"

[Asia Economy Reporter Kim Eun-byeol] In recent years, Korea's administered prices have significantly contributed to lowering consumer prices, leading to concerns that this may cause confusion in accurately understanding inflation trends. Administered prices refer to the average price changes of items whose prices are directly or indirectly influenced by the government.

According to the 'BOK Issue Note - Recent Trends and Future Outlook of Administered Prices' report released by the Bank of Korea on the 29th, Korea's administered prices have remained negative since the second half of 2017, after recording a positive (+) figure. In particular, during the second half of this year (July to November), administered prices fell by -2.7% year-on-year, marking the largest decline on record.

Compared to other countries, Korea experienced the largest drop in administered prices among major nations. The decline rate of Korea's administered prices in November this year compared to the end of 2017 was approximately 7%, which was greater than that of the EU (European Union), Japan, and others.

Since 2017, Korea also showed the largest negative contribution to consumer price inflation from administered prices, at about -0.7 percentage points among major countries.

The Bank of Korea attributed this phenomenon to the government's strengthened welfare policies related to education, healthcare, and telecommunications. Policies such as free high school education, expanded free school meals, enhanced health insurance coverage, increased discounts on selective telecommunication contracts, and telecommunication fee support have significantly lowered administered prices, thereby reducing overall consumer prices.

The Bank of Korea's report diagnosed, "While administered prices have played a role in lowering consumer prices, they act as a disruptive factor in understanding the underlying inflation trend." It added, "Within core inflation (excluding food and energy), which is mainly used to examine the underlying inflation trend, the share of administered price items is high at 23.4% (based on weights), so fluctuations in administered prices can significantly affect the core inflation trend. Accordingly, when administered prices fall sharply due to government policies, the gap between the core inflation rate at that time and the core inflation rate excluding administered prices tends to widen."

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