Despite the recent slowdown in inflation, the price level in Korea has increased considerably due to the accumulated impact of price hikes to date. In particular, prices for consumer staples such as food and clothing are high, creating a significant burden on the cost of living for households, especially among vulnerable groups.
Against this backdrop, an analysis comparing domestic price levels across different countries and periods revealed three stylized facts: (1) The overall price level in Korea, considering its national income level, is generally average among major advanced countries. (2) When examining individual items, however, there are many goods and services whose prices are substantially higher or lower than those of other countries. Notably, the costs of food, clothing, and housing are considerably higher than the OECD average, whereas public utility charges, including electricity, city gas, and public transportation, are much lower. (3) The price differentials in food, clothing, and public services between Korea and other major countries have widened further over time.
The persistence of these price differentials appears to be attributable to factors such as low productivity and limited openness (e.g., in the case of fruits), high transaction costs (e.g., agricultural products and clothing), and policy support (e.g., public utility charges). For agricultural products, limited land area and small-scale farming contribute to low productivity, and despite a steady increase in imports, Korea’s import openness (share of imports) for certain fruits and vegetables remains limited, compared to other advanced nations, while rising distribution costs further drive up agricultural product prices. High clothing prices are significantly influenced by domestic consumers’ strong preferences for certain brands, as well as by the concentration in high-cost distribution channels and the cost pressures from high inventory levels. Meanwhile, public utility charges remain low compared to other major countries, thanks to government policy efforts aimed at reducing household burdens.
While high inflation can be addressed through monetary policy, the phenomenon in which either high or low price levels persist due to structural issues is not easily resolved through such measures alone. Furthermore, it is necessary to seek solutions from a structural perspective, since it is likely that population aging will result in a decrease in the country’s fiscal capacity while the burden of the cost of living will increase due to factors such as climate change.
Above all, there is an urgent need to enhance productivity, diversify supply channels, and improve distribution structures in order to stabilize excessively high prices of consumer staples. In the case of fruits and vegetables, in particular, which are highly volatile products with limited choice, measures such as increasing stockpiling capacity, securing import sources, and diversifying the varieties consumed can be helpful to improve elasticity on both the supply and demand sides. During this process, the pace and scope of structural improvements should be gradually adjusted to minimize adverse impacts such as farm losses and weakened production bases, in parallel with strengthening policy efforts, such as a premium product strategy and support for a switch to other crops.
On the positive side, low public utility charges have helped mitigate household burdens and smooth out energy shocks following the Russia-Ukraine war. However, maintaining such low rates is not only unsustainable owing to anticipated increases in energy production costs driven by the transition to eco-friendly energy sources, but it can also lead to problems such as deterioration in the quality of public services, excessive energy consumption, and intergenerational inequity. To ensure the sustainability of public service supply, efforts to gradually normalize the rates should continue to be made, along with selective support for vulnerable groups who may be disproportionately affected by these changes.