1. Characteristics of Korea’s price level
(1) The overall price level is the average of major countries considering income level.
Korea’s overall price level is high globally, but is about average among major developed countries.
When comparing the prices of major countries by item, Korea has many items with significantly higher or lower price levels compared to other countries.
If the price of each item is indexed (relative price by item) based on the OECD country average (100),
In the case of Korea
While the costs of food, clothing, housing, etc. are significantly higher than the OECD average,
Public utility bills such as electricity, city gas, and public transportation are significantly low.
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Price levels for each item are spread widely compared to major countries.
It is significantly higher than the OECD average (more than 1.5 times),
Electricity and city gas rates and public transportation rates are significantly lower.
Looking at detailed items, food prices are higher than the OECD average, especially for agricultural and livestock products such as apples, beef, and potatoes.
Within products, the prices of clothes, shoes, etc. are high, while the prices of toilet paper, cigarettes, etc. are low.
In the case of services, golf course usage fees, housekeeper fees, etc. are high.
Internet fees, electricity and water fees are low.
Likewise
Food and clothing prices are significantly higher than in major countries, while public service prices are low.
This price gap has widened further than in the past.
It has been done.
When comparing the price level of each domestic item with the OECD average, the price level of food and clothing is
It has risen further since the 1990s.
Public utility bills actually fell.
2. Why the price gap for certain items persists compared to major countries
1) In case of higher prices compared to major countries
(1) Prices of agricultural products
(a) Low productivity
:
In Korea, the cultivated area per capita (0.3 hectares/person) is very small and the scale of farming is small, so labor productivity is ranked at the bottom (27th) among OECD countries.
Moreover, as the aging of farmers intensifies, crops are sluggish and cultivation areas are reduced due to abnormal climate, resulting in a slight decline in fruit and vegetable production since the 2010s.
(b) low opening
Due to the geographical distance from major agricultural exporting countries such as the United States, it is difficult to import fresh food with a short shelf life, and transportation costs are high, so the proportion of fruits and vegetables supplied through imports is significantly lower than that of the United States and the euro area.
(c) Increase in distribution costs
The cumulative increase in farm sales prices is lower than that of consumer prices, and the gap is continuously widening.
A situation in which wholesalers and retailers have greater market power than small-scale production farms.
(2) Clothing prices
(a) High-cost distribution structure
The sales commission rate of department stores that sell a large portion of clothing is higher than that of other product groups and distribution channels.
As for the sales method, the proportion of direct purchasing (purchasing directly from the producer), which can reduce intermediate distribution, is around 3%, which is significantly lower than in major countries.
※Proportion of direct purchases at department stores (Small Business Institute, 2016):
USA 80~90% UK 62% France 60~70% Japan 5~10% Korea 3% (FTC, 2023)
In addition, it is assessed that there is a possibility that the high inventory level in the clothing industry will be passed on to consumer prices to a significant extent as it acts as a cost pressure.
Due to this high-cost distribution structure, the cumulative increase rate of consumer prices for clothing items is significantly higher than import prices or producer prices.
(b) price discrimination
It appears that some foreign clothing companies are adopting a price differentiation strategy in the domestic market where price elasticity for clothing is low.
In fact, there are frequent cases where the price of the same product from a global brand is higher in Korea.
2) In case of lower prices compared to major countries
(1)Utility charges
Public utility bills remain low compared to major countries due to the influence of government policies.
It is becoming.
Korea’s electricity and city gas rates are low compared to production costs.
The government’s policy efforts that take into account household burdens are playing a big role in this.
In Korea, the cost of food, clothing and shelter continues to be high compared to major countries.
In particular, the burden on households is heavy, especially for vulnerable groups such as low-income households and the elderly.
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On the other hand, utility bills are kept low, reducing this household burden.
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In recent years, there has been an aspect of buffering the energy shock caused by the Russo-U.S. war.
However, low public utility rates compared to production costs are not sustainable and can lead to problems such as poor quality of public services, excessive energy consumption and backwardness, and inequality between generations.
In the future, financial capacity will decrease due to aging, while crop disruptions due to climate change are likely to continue to increase the burden of living expenses.
thus
Improvements in structural aspects such as increased productivity and diversification of supply channels are essential.
do.
In addition, in order to secure the sustainability of public service supply in a situation where an increase in production costs is inevitable due to the transition to eco-friendly energy, etc.
There is a need to continue efforts to gradually normalize public utility bills while also providing selective support to vulnerable groups.