July Heavy Rain and Heatwave Bills Arrive... Bank of Korea "Prices to Rise by 0.1% This Year"

[Financial News] An analysis has emerged that last month's record-breaking heatwave and heavy rain will raise this year's consumer price inflation rate by 0.1%p. It is pointed out that the rise in raw material costs has been passed on to dining prices, raising consumer prices themselves as agricultural, livestock, and fishery product prices soared due to changes in weather conditions.
According to the Bank of Korea's report on the 'Impact of Recent Heavy Rain and Heatwaves on Growth and Prices' released on the 31st, the number of days with heavy rain, meaning precipitation of 30mm or more per hour, increased by 23.9% in the 2020s (49 days) compared to the 2000s (39 days). The number of heatwave days, with a maximum daily temperature of 33 degrees or more, averaged 67 days in the 2020s, a 44.9% increase compared to the 2000s (46 days).
The Bank of Korea diagnosed that the possibility of negative shocks affecting the overall economy has increased as record-breaking heavy rain and heatwaves have occurred consecutively over the past three years since 2023. Although this year's summer season is not over, the Bank of Korea explained that considering the trend so far, heavy rain and heatwaves at a level comparable to last year are expected to occur simultaneously.
In particular, it was found that the heavy rain and heatwaves that occurred last month would exert direct upward pressure on this year's consumer prices as agricultural, livestock, and fishery product prices rise. Looking at the price changes by item, the prices of vegetables such as spinach and perilla leaves, and fruits such as peaches and watermelons, which decreased in shipment due to worsening weather conditions in July, rose sharply.
In the case of livestock products, damage mainly occurred to poultry such as chickens and ducks, and egg prices also showed a high level compared to the average year due to the death of laying hens and a decrease in laying rates caused by the heatwave. Additionally, the reduction in the number of cattle and pigs raised and the expansion of laying hen breeding areas following legal amendments also contributed to the rise in livestock prices.
Fishery product prices also continue to rise, increasing by 7.3% last month due to a decrease in fishing and aquaculture shipments caused by rising sea surface temperatures. In particular, the price of fish with a high consumption share, such as mackerel and squid, has risen, and the contribution of fishery product prices to consumer prices reached 0.08%p last month, the highest level since February 2023.
Agricultural, livestock, and fishery product prices are expected to have a direct and indirect impact on dining prices with a time lag. According to the Bank of Korea's estimate, a 10% rise in agricultural, livestock, and fishery product prices raises dining prices by 0.9% after three quarters.
Yang Junbin, head of the Economic Trends Team at the Research Bureau, said, "The upward pressure on raw material prices, which has been accumulated for a considerable period due to sluggish consumption, has not been fully passed on to dining prices," adding, "It is necessary to pay attention to the possibility that the upward trend in dining service prices may increase during the recovery process of domestic demand."
As a result of the Bank of Korea's analysis of the price impact of the July heavy rain and heatwave, the consumer price inflation effect was estimated to be 0.3%p in the third quarter and 0.1%p annually. In addition, considering the frequent occurrence of autumn typhoons due to climate change and the delayed Chuseok holiday this year, there is a possibility that agricultural, livestock, and fishery product prices may rise further.
The Bank of Korea pointed out, "Extreme weather events can exert negative shocks on short-term growth and prices, as well as act as downward pressure on potential growth rates through loss of life and property, damage to production facilities, and productivity decline, highlighting the need for systematic and preemptive policy responses."
In fact, as a result of the Bank of Korea's analysis of the short-term impact of heavy rain and heatwaves on each sector, it was found that the impact was significant, especially in industries closely related to outdoor activities, such as construction, agriculture, forestry, and fisheries, and face-to-face service industries. Based on the third quarter, when heavy rain and heatwaves are concentrated, the growth rate from 2020 to 2025 decreased by about 0.1%p in construction and face-to-face service industries compared to the 2010s, and by 0.04%p annually.
eastcold@fnnews.com Kim Dongchan Reporter