[Inside Chodong] Thoughts on Galbitang

[Asia Economy Reporter Seo So-jeong] Unwelcome news has been arriving one after another since the beginning of the year. A bowl of galbitang at a family-favorite restaurant is now 14,000 won, marking the biggest increase among dining-out items compared to a year ago. The price of galbitang has risen significantly due to the sharp increase in the price of its main ingredient, imported beef.

It’s not just food. The home study material company that children receive monthly has notified a price increase of up to 10% starting next month. The private education industry, which had postponed price hikes last year due to remote classes caused by COVID-19, raised prices in March to coincide with the start of the new semester. A cram school director argued, "We operate a shuttle bus, and considering inflation, labor costs, and fuel prices, raising tuition fees is inevitable." Along with soaring dining prices, tuition fees are also rising one after another, increasing the financial burden on parents for education expenses.

Companies’ views on inflation are no different. According to a survey by the Bank of Korea on companies’ inflation expectations for the next year from November last year to January this year, the average expectation was 10.6%, far exceeding the inflation stabilization target of 2%. The average inflation rate experienced by domestic companies over the past year was 9.7%, significantly higher than actual inflation. This is because companies’ perceived inflation rose sharply due to surging raw material prices, including international oil prices, after COVID-19.

Oil prices and exchange rates, which affect overall inflation, are also soaring. The won-dollar exchange rate has been fluctuating around the psychological threshold of 1,200 won. The nationwide average price of gasoline at gas stations is approaching 1,800 won per liter. With oil prices, exchange rates, and inflation all rising simultaneously, the Bank of Korea’s calculations for setting the base interest rate have become complicated. Following last year, the base rate was raised to 1.25% in January as a preemptive measure, but with the U.S. accelerating rate hikes and quantitative tightening, and the possibility of inflation reaching the 4% range, it is widely expected that domestic base rate hikes will accelerate.

One of the biggest variables is inflation. Even among the Monetary Policy Committee members who decided on the base rate hike in January, there were many calls for preemptive measures to manage inflation expectations. One committee member said, "Until last year, inflation increases were limited to goods such as petroleum products and agricultural and livestock products, but now it is spreading to services. The impact of rising inflation expectations may appear more immediately in service prices than in goods prices," emphasizing, "The simultaneous rise in dining-out costs is closely related to the effect of inflation expectations, so managing this is important."

Although a precarious atmosphere surrounds the Korean economy from the start of the year, the political sphere is demanding an increase in the supplementary budget by up to 50 trillion won, intensifying inflationary pressures. This is out of sync with the Bank of Korea’s efforts to curb inflation by pushing for a massive supplementary budget. Experts warn that with national debt already exceeding 1,000 trillion won, if the second and third supplementary budgets are prepared after the March presidential election, fiscal soundness could be shaken.

The global economy is facing a critical situation as the U.S. monetary tightening policy enters its final phase and central banks worldwide begin liquidity withdrawal. This calls for more organic and sophisticated monetary and financial policies than ever before. Now is not the time for a competition of populist spending ahead of elections but a time to urgently prepare policies that allow the Korean economy to achieve a soft landing after COVID-19. The political sphere must not forget that populist pledges intended to help ordinary people could instead increase their suffering.

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