Public utility price hikes in series

Electricity and gas prices are being raised effective Saturday, and an average household will pay 2,270 won more per month for electricity and 5,400 won per month for gas. A taxi rate increase is also expected in December. Public utility price hikes exacerbate serious inflation, hovering around 5 to 6 percent. Anxiety is growing among consumers who have been patient about steep interest rate increases. The government said inflation would peak around October if we wait and see.

Korea Gas Corp. raised the average rates for a family of four by 15.9 percent, from 33,980 won to 39,380 won a month. Korea Electric Power Corp. increased the base rate by 2.5 won per kilowatt on top of its scheduled increase. The government is planning a tiered increase in public utility prices based on fuel import prices to recover the price control abilities of energy rates. Adding to the matter, the city of Seoul will increase the basic night fare for taxis by 700 won from December and the basic day fare by 1,000 won from next February to help alleviate the chronic taxi shortage in the city.

Due to skyrocketing fuel price deficits, Korea Electric Power Corp. and Korea Gas Corp. are running out of control, making utility price increases inevitable. The former administration was reluctant to raise utility prices on time and, thus, contained the prices due to public sentiment. So the side effects of the action are cropping up now. “Despite 10 requests to raise electricity prices, the former administration increased the price only once during the five years,” the president of Korea Electric Power Corp used to complain.

What is more serious is that policymakers have been overly optimistic about inflation, saying it will reach its peak soon, even when they know raising utility prices is inevitable. This optimism has significantly weakened the Korean people's trust in the government as it needs to raise utility prices amid risky economic situations caused by exchange rate-induced inflation. Criticism has recently arisen as the government and the Bank of Korea were at odds regarding issues around the current balance and currency swaps, stoking confusion in the market. It is worrisome that the government would deal with the perfect storm, which is waiting to hit the Korean economy if it doesn’t change its perception of Korea’s situation.