Vegetable prices soar following heavy rains in Korea

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The prices of vegetables and other products have surged in South Korea following a recent series of heavy rains, raising concerns about the volatility of living costs, which seemed to have stabilized recently.

According to data released by Statistics Korea on Monday, the consumer price index for living necessaries rose by 2.3 percent last month from a year earlier. This is the lowest increase in 27 months since March 2021 when it was 2.1 percent.

The cost of living index is composed of 144 items that consumers purchase frequently and is closer to the perceived inflation rate compared to the overall consumer price index.

Although the cost of living index fell to the 2 percent range last month for the first time in two years and three months, recent heavy rains have raised the possibility of increased volatility of living costs. According to the Korea Agro-Fisheries & Food Trade Corp. (aT), the wholesale price of green lettuce per 4 kilograms surged by an average of 398.7 percent to 90,360 won ($ 70.19) on Friday, compared to 18,120 won four weeks ago. Over the same period, the wholesale price of red lettuce per 4 kilograms also jumped by 343.8 percent to 83,520 won, and spinach by 214.1 percent to 55,660 won. Similarly, sesame leaves rose by 77.9 percent, and zucchinis by 147.4 percent.

The share of vegetables in the cost of living index is 2.5 percent, which is larger than their share of 1.69 percent in the overall consumer price index. This means that a surge in vegetable prices is likely to lead to a rise in perceived inflation rate.

In addition to the heavy rains, there are uncertainties, such as “agflation” which refers to rising agricultural prices leading to an increase in overall commodity prices. Recently, wheat and other grain prices have been on the rise after Russia terminated the Black Sea Grain Initiative, which allowed Ukraine and Russia to export grain, and shelled Ukraine‘s largest port city of Odessa. According to the New York Times on July 20, wheat prices went up more than 10 percent since Russia declared the suspension of the agreement on July 17.

[Photo by Yonhap]

Oil prices are also rising on expectations of a soft landing for the global economy. On July 21 (local time), the price of West Texas Intermediate (WTI) crude oil closed at $77.07 per barrel on the New York Mercantile Exchange, up 11.44 percent in four weeks. A possible increase in utility rates, such as electricity rates, which has been postponed due to consumer burden concerns, may also contribute to higher inflation.

If the ongoing torrential rains continue to cause further damage, prices of vegetables and other agricultural, livestock and marine products could increase the volatility of overall prices. In fact, during the long rainy season in September 2020, prices of agricultural, livestock and marine products rose by 12.8 percent, contributing 1.04 percentage points to the overall inflation rate. Considering that the consumer price inflation rate was 0.9 percent at the time, this means that agricultural products drove up the overall inflation rate.

Even after the end of the rainy season, heat waves and typhoons may continue to be the main drivers of increased food prices in the third quarter.

“In the long run, inflation will continue to slow down, but the immediate question is what will happen to prices in the third quarter,” said Joo Won, a senior economist at Hyundai Research Institute.

The government expects that overall inflation will continue to slow despite the recent floods. It plans, however, to focus on stabilizing the prices of daily necessities such as vegetables, while keeping in mind concerns about increased volatility of consumer prices in the short term.

“I don’t think there will be any major changes,” said Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho in a recent meeting with economy-related ministers. “We will ensure supply stability.”

To this end, the government will support reseeding of lettuce and other crops and expand production and shipment of alternative products such as sesame leaves. It will also lift tariffs on 30,000 tons of chicken meat by the end of August and expand the quota down the road. Furthermore, the government will import 5 million hatchery egg for domestic breeding to address supply uncertainties.

As for utility prices, the government plans to minimize the rising factors and refrain from raising them.