Selling Electricity and Gas at a Loss... Bank of Korea Says "Corporate Greed Inflation Is Not Significant"

An electric meter is installed in a commercial building in Seoul. Photo by Jinhyung Kang aymsdream@

Unlike the United States and Europe, South Korea has seen little 'greedflation,' where corporate profit increases drive inflation, according to an analysis. The Bank of Korea explained that this is because Korea Electric Power Corporation (KEPCO) and Korea Gas Corporation supplied electricity and gas at low prices despite operating at a loss, and households and businesses shared the burden under government efforts.

According to a post titled "Corporate Profits and Inflation: A Comparison with Major Countries" published on the Bank of Korea's blog on the 1st, import prices had a significant impact on South Korea's inflation last year, while the influence of corporate operating surplus was small compared to the United States and Europe.

Since the COVID-19 pandemic, increasing corporate profits, especially in the Euro area, have been cited as one of the main drivers of inflation. The phenomenon where rising corporate profits lead inflation is called 'greedflation,' meaning inflation driven by greed.

The Bank of Korea noted that examining the contribution of operating surplus to the 'private consumption expenditure deflator,' which shows a trend similar to consumer prices after the pandemic, reveals that the United States and the Euro area have shown steady expansion, whereas South Korea is estimated to have experienced a significant decline last year.

The relatively low level of greedflation in South Korea is attributed to less impact from global supply chain disruptions and the Russia-Ukraine war compared to the United States and Europe, resulting in relatively smaller price increases by companies due to supply-demand imbalances.

In the Euro area, supply shortages worsened during the pandemic, leading companies to raise prices significantly, but the Bank of Korea expects that price increases due to supply-demand imbalances in South Korea were smaller than in the Euro area.

In particular, the large negative contribution of operating surplus in the electricity, gas, and water sectors, including KEPCO and Korea Gas Corporation, is believed to have had a considerable impact. Despite the sharp rise in oil and natural gas prices last year, public enterprises such as KEPCO recorded substantial losses, limiting price increases.

Excluding the electricity, gas, and water sectors, corporate profits had a positive impact on inflation last year, but even in this case, the contribution of operating surplus to South Korea's inflation was much lower than that of the United States and the Euro area.

Jang Byung-hoon, head of the Bank of Korea's Price Trends Team and author of the blog, explained, "Along with policy authorities' efforts to stabilize prices, households and businesses restrained excessive wage and price increases, sharing the burden, which likely limited the spread of secondary effects."

He added, "Considering that energy public enterprises such as KEPCO and Korea Gas Corporation recorded large losses last year, the public sector also significantly contributed to reducing inflationary pressures."

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