Reining in soaring service prices

Rising interest rates while prices remain high only helps harden people's lives. Policymakers must strive harder to tame red-hot prices before it is too late.

Dining and other service charges are soaring. The consumer price index has eased for two straight months, but service rates gained to their highest in 21 years. Red-hot inflation sweeping the world from Russia’s protracted war with Ukraine and rapid rises in U.S. interest rates have spilled over from food and fuel costs to the service sector.

According to Statistics Korea, the service price index rose 4.2 percent on year to 106.53 in September, the highest gain since 4.3 percent in October 2001. Service prices that hardly rose in 2020 jumped to the 2 percent range in the mid-2021 and shot above 4 percent in July this year.

The rise in service charges despite an easing of headline inflation could cause a serious problem for the economy. Consumer prices can come down when supplies of products increase. But service charges hardly come down once they go up. The United States has been plagued by “sticky” high prices despite the Fed’s rapid rate hikes. Consumers will close their wallets and service providers will suffer a plunge in their revenue. Many will have to close businesses as they cannot go on raising menu prices even when prices of ingredients go up.

Service charges take up much of consumer spending. From dining to air ticket fares, travel expenses, drive-for-hire rates, app subscriptions and delivery fees, service types and usages have been increasing more than ever. People can refrain from buying cars, electronics goods or furniture when they become more expensive. But they cannot cut back much on services.

When service prices gained 4.2 percent last month, individual service prices jumped a whopping 6.4 percent, the highest since 6.6 percent in April 1998. Dining costs soared 9 percent, the steepest since July 1992. Everyday menus like hamburgers and gimbap rose more than 10 percent.

To make matters worse, electricity and gas bills are scheduled to go up in October. Service charges reflect the rises in energy and commodity prices, labor costs and rent. If any one of them stays high, service providers won’t likely bring down prices.

Price strengthening won’t likely ease for some time. On top of the super-strong dollar, the U.S. central bank will continue to raise the benchmark rates. The Bank of Korea will likely push up its key rate in October. Rising interest rates while prices remain high only helps harden people’s lives. Policymakers must strive harder to tame red-hot prices before it is too late.