Inflation in June was found to have risen by 6% compared to the same month of the previous year.

It's a number I haven't seen in over 20 years, and I thought I'd never see it again.

Usually, when the economy is difficult or prices rise like this, articles like 'feeling business is more difficult' or 'feeling price is higher' are common.

In fact, the index price and perceived price are inevitably different, which is usually explained for the following reasons.


(1) The prices of items that I spend a lot of money on have risen in particular.


(2) As the number of families increases or children grow, more money is required, which I feel as inflation.


(3) When I buy a car or home appliance, I compare it with the price I bought a few years ago, not a month ago or a year ago.


All explanations are correct, but is it really just a difference in feeling that ordinary citizens feel?

Many researchers believe otherwise.

In particular, we will focus on the cost of housing.

The CPI is calculated by combining the price changes of 458 items.

Of these, 5.4% for jeonse and 4.4% for monthly rent.

This means that 9.8% of the housing cost is the share.

But here are some points to think about.

How does it reflect the premortal life?


The most widely used real estate statistics by the government and the private sector are statistics created by the Korea Real Estate Agency and KB Kookmin Bank.

However, this data is not used when calculating the consumer price index.

The National Statistical Office is conducting its own investigation.

There is a discrepancy here.

According to a recently published paper, the statistics of the Real Estate Agency and KB Kookmin Bank show similar movements, while the Jeonse index in the consumer price index shows much smaller fluctuations than this.

The blue graph is the National Statistical Office, the red dotted line is the real estate agency, and the black dotted line is the KB Kookmin Bank’s jeonse price index.

(Seo Jae-yong and Jang Yong-seong, 'Potential Disparity Factors in Consumer Inflation Rate Statistics,' Economics Research Vol. 70, No. 2, 2022)



Enlarging an image


The characteristic of a system called Jeonse, which exists only in Korea, makes it more difficult to properly reflect the price.

Oh Ji-yoon, head of KDI's real estate team, said in the recently released 'Changes in rental housing cost and housing supply' report, "Since the deposit is returned, it is difficult to see it as a housing cost in itself, and the housing cost as an opportunity cost will be measured from the perspective of procurement costs that reflect interest rates. I also wrote that there was a need.

Does it cost to live in my house?


Buying a house is an investment, not a consumption.

Therefore, the house price cannot be included in the price index as it is.

However, in terms of opportunity cost, it is correct to include the 'housing services' fee.

'The income you can receive if you rent out the house you are living in' is the 'cost of living in my house now (own housing cost)'.

Giving up rental income and living in this house is in itself affecting my spending power.

If you include your own housing costs, the share of housing costs in consumer prices will rise sharply.

The reason why the proportion of housing cost in Korea is particularly low is that the cost of self-sufficient housing is not included.



Enlarging an image


The calculation mentioned above is called the 'Rent Equity Approach'.

It is also the method used by most countries.

In this case, the task remains how to calculate the rent.

Considering the purpose of the CPI, which is measured every month, it seems appropriate to immediately reflect the market price of a similar house nearby, but overseas, it is generally based on the price at the time of the rental agreement.

Overseas, the contract period is short and rent adjustments occur frequently, so it is not too difficult to reflect the market price even if this is done.

On the other hand, in Korea, the lease contract is usually 2 years, and when the renewal claim is used, the period is long, so if the price at the time of the contract is used in this way, there is a high possibility that the figure will come out far from reality.

The consumer price index, which has completely eliminated the cost of owning housing, distorts reality.

The National Statistical Office publishes inflation rates every month and attaches foreign inflation rates to the end of the press release.

But can we only compare numbers calculated in a different way with other countries?

Jang Yong-seong, a professor of economics at Seoul National University, calculated that the inflation rate would rise by 1.62% from the current level if housing costs were taken into account.

Even if you include your own housing expenses, the inflation rate in June will be 7.62%, not 6%.

If the diagnosis is wrong, there is a high probability that the prescription will be wrong.



It is not a matter for the National Statistical Office to decide what to do with one's own housing expenses.

The amount of the national pension payment will be adjusted in conjunction with the previous year's consumer price inflation rate.

If such a large change occurs, the long-term estimate of the national pension may need to be re-established.

There are more than 40 laws related to the consumer price index, including various pensions.

Whether public or private, the rate of inflation is the first indicator to be considered in the wage negotiation process.

At the end of last year, the National Statistical Office said, "We are trying to deal with the matter by consulting with experts and related organizations."

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