Spending on food in Korean household budgets hits highest level in 21 years, implying lower income

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[Photo by Lee Chung-woo]

Spending on food in household budgets hit a 21-year high in South Korea last year, suggesting a deterioration in incomes in the second year of Covid-19.

The country’s Engel coefficient, which is the proportion of money spent on food in household spending, reached 12.86 percent last year, according to the study by the Korea Institute of Economic Research. (KERI) published on Thursday. The figure is the highest since 2000, when it recorded 13.29%.

A higher coefficient suggests that life has become more difficult to force ordinary households to limit their spending to basic necessities like food. According to Engel’s Law, an economic theory, the percentage of income spent on food purchases decreases as income increases on a relative basis. In other words, the Engel coefficient increases when people get poorer.

KERI observed that Korean households were cutting unnecessary spending to limit spending on daily necessities as economic uncertainties increased due to the protracted Covid-19 crisis.

Before the Covid-19 outbreak, Korean household spending was growing faster than disposable income. But household spending fell 3.3% year on year in 2020 while income rose 0.6%. In 2021, expenses increased by 6.5% year on year, but more slowly than the 6.8% of revenues.

The spike in food prices has also been attributed to rising household food expenditure.

Prices of imported food products, such as agricultural products and fish, jumped 13.5% in 2021 after gaining 0.6% the previous year. This led to a 5.9% increase in food and beverage prices, much faster than a 2.5% increase in overall consumer prices.

The Schwabe Index, which measures housing costs relative to total household spending to gauge a household’s quality of life, also remained high. It recorded 17.94% in 2021 and 18.56% in 2020.

This is largely due to the rising costs of buying and renting a home.

The housing price index climbed 13.5% last year, from 1.4% in 2019 to 3.8% in 2020. The index of jeonse, Korea’s single lump sum deposit for rental housing, also climbed to 6.5% last year after registering 1.7% in 2020.

By Park Dong-hwan and Cho Jeehyun

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]

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