The Bank of Korea: "Eggflation to Continue Next Year... Dining Out and Processed Food Prices to Rise Further"

'Recent Status and Implications of Agflation' Report
International Food Price Increases Expected to Continue for a Significant Period

Citizens are shopping at a large supermarket in Seoul. Amid the recent severe inflation situation, with last month's consumer price inflation rate exceeding 5%, the sharp rise in international grain prices due to the Ukraine crisis and export restrictions by major grain-producing countries is being transmitted domestically. Photo by Kim Hyun-min kimhyun81@

The Bank of Korea expects the rise in international food prices caused by the Ukraine crisis and other factors to continue for a considerable period, and anticipates that the domestic inflationary trend will also persist for the time being. Prices of processed foods and dining out are predicted to increase further next year.

On the 21st, the Bank of Korea explained in its BOK Issue Note titled "Recent Status and Implications of Agflation" that "due to the Russia-Ukraine war and export restrictions by major producing countries, the upward trend in international food prices has significantly expanded, raising concerns about agflation."

According to the report, prices of wheat and corn, which have a high export share from Russia and Ukraine, have risen sharply due to supply disruption concerns, and prices of oils and meats have also increased due to export restrictions and rising prices of feed grains.

The report forecasted that "structural factors such as poor crop yields caused by abnormal weather and the shift to biofuel production for carbon neutrality are intertwined, making it highly likely that international food prices will remain at high levels for a considerable period."

The impact of rising international food prices on domestic inflation was found to be smaller compared to major advanced countries overseas. The report explained, "Compared to the United States or the Euro area, South Korea's food price inflation rate this year is relatively low, mainly due to the base effect from a sharp increase last year."

Since South Korea has a relatively high dependence on food imports, there is analysis that the domestic inflationary ripple effect from rising international food prices could worsen further in the second half of the year. In the case of processed food prices, the increase in logistics and labor costs after the COVID-19 pandemic, combined with the delayed reflection of the rising international food prices, has greatly expanded the rate of increase. This price rise exceeds the surge level seen during the 2011 spike.

Prices for dining out are also rising at a pace significantly exceeding past surge periods. The pressure to raise dining prices has accumulated due to increased ingredient costs, and demand pressure has also risen following the lifting of social distancing measures, suggesting that a high level of price increases will continue for a considerable period.

Most items comprising the processed food and dining out sectors are frequently purchased and sensitive to price changes, making them part of everyday living expenses that could influence expected inflation through perceived inflation.

The report noted, "It is also necessary to pay attention to the fact that the significant expansion of domestic food and dining price increases may exacerbate the economic burden on low-income groups, who have a relatively large share of related expenditures."

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