[First Livelihood Measure of Yoon Administration] Government Unveils All Inflation Stabilization Cards... Actual Effect Only 0.1%P?

[Asia Economy Sejong=Reporter Son Seon-hee] The government's recent 'Emergency Livelihood Stabilization Project' can be summarized as encompassing all possible measures including tax, financial support, and subsidies. Apart from direct price control methods, the government has pulled out every card it can play. However, the actual price reduction effect is estimated to be minimal, around 0.1 percentage points per month. Moreover, there will be a time lag before the policy effects are reflected, so consumers are expected to actually feel the impact no earlier than September or October. Meanwhile, the inflation rate is projected to soar to the mid-to-high 5% range, making direct damage from high prices inevitable for the time being.

According to the Ministry of Economy and Finance on the 30th, the scale of support under this Livelihood Stabilization Project is about 3.1 trillion won. It consists of 2.2 trillion won for livelihood and price stabilization projects included in the '2nd supplementary budget' approved at the temporary Cabinet meeting, 600 billion won in tax revenue losses due to various tax cuts, and 300 billion won for diesel fuel price-linked subsidies.

The Ministry estimates that the price stabilization effect will be about 0.1 percentage points per month. Assuming the consumer price inflation rate rises by 4.8% compared to last month, the effect of the livelihood measures being implemented would lower it slightly to 4.7%. Yoon In-dae, Director of the Economic Policy Bureau at the Ministry of Economy and Finance, said, "If all the announced policies are delivered to consumers as expected, I think there will be about a 0.1 percentage point effect." He added, "Regarding fuel tax, it was further reduced by 10 percentage points from the 1st of this month, and additional fuel price-linked subsidies were paid in mid-month, so we might see a bit more effect." However, he noted, "There is a time lag before the policy effects reach consumers," adding, "It will likely be around September to October before the full effect is realized."

Yoon In-dae, Acting Director General of the Economic Policy Bureau at the Ministry of Economy and Finance, is giving a pre-briefing on the "Measures to Stabilize the Livelihood Economy" at the Government Complex Sejong in Sejong City on the 27th. 2022.5.30 Photo by Yonhap News

Although the government has released 3.1 trillion won in funds to manage prices, the consumer price inflation rate for May, to be announced on the 3rd of next month, is widely expected to enter the 5% range. On the 27th, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho acknowledged the 5% inflation rate, saying after a meeting with financial holding company chairpersons, "We will see numbers exceeding 5% inflation for a certain period in various forms."

Inflation is likely to remain in the mid-to-high 5% range for some time after June. This is because nearly 30 trillion won in cash will be injected through the second supplementary budget while the actual price stabilization effect of the Livelihood Stabilization Project remains limited.

The government emphasized that this measure is just a 'start' and plans to continuously monitor the price situation and proactively manage to prevent anxiety or speculative demand in specific items or sectors from adding further inflationary pressure. Director Yoon said, "We have considered all possible short-term measures to reduce the immediate burden of food costs," adding, "Therefore, although the tax revenue loss may not be large, we believe the perceived effect will be significant." He continued, "If the burden from price increases grows further in the future, we will consider additional measures."

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