Fruit Prices Up Over 150%... Inflation Indicators 'Stable' but Perception Says 'Not Really' [Chosun Inflation Records]

(47) 2024 Price Settlement

This year, the consumer price inflation rate stabilized around the government's target of 2%, indicating a stable trend in the indicators. However, the so-called 'cheapflation' phenomenon, where prices of low-priced goods rise more sharply than those of high-priced goods, has caused the perceived inflation rate among ordinary citizens to be higher. Prices of commonly consumed fruits such as apples and pears rose by as much as 150% compared to the average year, and food prices fluctuated due to rising raw material costs and exchange rates.

The consumer price inflation curve this year is drawn more gently than last year. Except for July, the monthly increases were smaller than the same months last year, and the inflation rate remained in the 1% range for three consecutive months after September. According to the National Statistical Portal of Statistics Korea, the consumer price inflation rate (compared to the same month last year) generally stayed in the 2% range this year, dropping to the 1% range from September to November. Compared to January 2023, when the inflation rate peaked at 5% and then dropped to the 3-4% range, the inflation curve shows a clearly more stable pattern than last year.

The Issue Is 'Perceived Inflation'... Raw Material Prices Soar

Due to the record-breaking heatwave, the prices of tangerines and strawberries, which are typically enjoyed in winter, have risen by more than 10% compared to last year. On the 20th, a vendor was waiting for customers at the Cheongnyangni Agricultural and Marine Products Market in Dongdaemun-gu, Seoul. According to the Korea Agro-Fisheries & Food Trade Corporation (aT), the average retail price of tangerines (open-field) is 4,265 won for 10 pieces, 18% higher than a year ago, and the average retail price of strawberries is 2,532 won per 100g, 14% higher than a year ago and 24% higher than the average year. Photo by Jinhyung Kang

While the indicators suggest price stability, the perceived inflation tells a different story. The sharp rise in apple and pear prices, which began last year, continued until the new fruit harvest this year, marking a record high in fruit prices. In January this year, fruit prices accounted for one-seventh of the overall inflation.

As criticism grew that fruit prices are the main culprit behind inflation, two institutions offered conflicting interpretations regarding the cause of the fruit price surge. The Ministry of Agriculture, Food and Rural Affairs pointed to production decreases rather than the distribution system as the cause of rising fruit prices. On February 16, the ministry released an article and explanatory materials related to 'Apple and pear prices will continue to rise after Lunar New Year... "There is another reason for the high prices"' , stating "The distribution costs of major agricultural products in Korea are lower than those in advanced countries," and "The recent rise in apple prices is judged to be more influenced by production decreases than by distribution structure issues."

On the other hand, the Bank of Korea (BOK) pointed to low productivity, low openness, and inefficient distribution structures as causes of agricultural product price increases. In its report titled 'Characteristics and Implications of Korea's Price Level,' the BOK noted, "Compared to small-scale producers, wholesalers and retailers have significant market power," and pointed out that "the distribution cost ratio for agricultural products (distribution costs/consumer price) has gradually increased from 39% in 1999 to about 50% in 2022."

Currently, apple prices have recovered to levels similar to the average year. According to the Korea Agro-Fisheries & Food Trade Corporation (aT) Agricultural Product Distribution Information (KAMIS), on the 24th, the retail price of apples (Fuji, standard grade, 10 pieces) was 25,734 KRW, which is 25% lower than the peak of 34,602 KRW recorded on March 7, and below the average price of 25,177 KRW. The retail price of pears (Shingo, standard grade, 10 pieces) was 39,645 KRW as of the 24th. Pear prices reached 85,813 KRW on July 24, a 154% increase compared to the average price of 33,742 KRW.

Ultra-low price coffee. Photo by Hyunmin Kim kimhyun81@

Climate change has become a constant factor in price increases. Extreme weather events such as severe droughts, heavy rains, and heatwaves around the world have affected crop yields. Prices of coffee, cocoa, and olives have all surged due to poor harvests caused by abnormal weather.

International coffee bean prices have reached record highs. Earlier this month, the March futures price for Indian Arabica coffee beans surged to $3.48 per pound on the New York market, surpassing the previous record of $3.38 set in April 1977. Cocoa prices are also on the rise. On the U.S. ICE Futures Exchange, cocoa futures closed at $12,565 per ton on the 18th, breaking the $12,000 mark for the first time. Korea relies entirely on imports for coffee beans and cocoa.

Consumption polarization amid high inflation has become more pronounced. This trend is especially evident in coffee consumption, where low-priced coffee chains such as Mega MGC Coffee (Mega Coffee), Compose Coffee, and Paik's Coffee have thrived, with their nationwide franchise stores surpassing 7,000 this year. Additionally, Morocco's Basha Coffee, which prices its 350ml Gold Pot coffee starting at 16,000 KRW, opened its first store in Korea and gained popularity.

What Is the Inflation Outlook for Next Year?

The dominant assessment is that inflation will continue to show a stable trend in the indicators next year. The Korea Development Institute (KDI) projected the consumer price inflation rate for 2025 at 1.6%. KDI stated, "Next year's inflation rate is expected to be 1.6%, lower than 2.3% in 2024, falling below the inflation stabilization target."

The Bank of Korea also recently diagnosed in its 'Inflation Stabilization Target Operation Status' report that "the stable trend in inflation is expected to continue." However, it mentioned that rising raw material prices and the strong dollar could act as variables by pushing up import prices. The BOK forecasted, "While domestic demand is gradually improving, factors such as exchange rate increases and public utility fee hikes will act as upward pressures on inflation, whereas oil price declines will act as downward pressures."

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