Food prices set to climb further in second half as cost pressures mount

A wave of food and dining-out price increases has taken hold in the second half of this year, as cost pressures from the Middle East war and other factors continue to build despite the government's efforts to keep inflation in check. Major food companies have announced price hikes this month, and restaurant prices are rising sharply. Experts warned that inflation is likely to persist through the second half even as the won-dollar exchange rate has recently eased.

Sajo and CJ CheilJedang will raise prices on select products starting in August, according to the food industry Friday. Sajo will increase prices by up to 20%, with canned tuna up 10% and canned fish products such as Pacific saury and mackerel up 20%. Prices for fermented paste products — including gochujang, doenjang and ssamjang — as well as sesame and perilla oils will each rise 12% across the board. CJ CheilJedang will raise prices on 27 product lines, including cooked rice pouches, mandu and grilled fish, by an average of 8%.

Coca-Cola Beverage will also raise factory prices by 100 to 300 won on select products sold at convenience stores — including Coca-Cola, Sprite and Fanta — starting in August, for an average increase of 7.2%. In the beverage sector, Lotte Chilsung raised prices on 44 items, including Chilsung Cider and Pepsi-Cola, by an average of 5.3% starting June 26.

The food industry attributes the string of price hikes to higher packaging and logistics costs driven by rising oil prices, a high exchange rate and more expensive raw materials. The fallout from the war between the United States and Iran that broke out in February has persisted for months, driving up costs across the supply chain from raw material procurement to distribution. Companies say they held off on raising prices in the first half in line with the government's price-stability stance, but ultimately had no choice as the pressure became too great. "A business fundamentally needs to turn a profit," one industry official said. "We had no choice but to raise prices when we were on the verge of running a deficit."

The high exchange rate, cited as a primary driver of costs, has been trending lower recently. The won-dollar rate, which had surged into the mid-1,500 won range, has since fallen back to the late-1,400 won range. But experts broadly agree that this is not enough to plug the dam that has already burst.

Lee Eun-hee, a professor of consumer studies at Inha University, said the impact of the weaker exchange rate would not be felt for another two to three months. "Summer crop conditions affect food prices, and inflation may not be brought under control by Chuseok," she said. She added that price pressures would remain severe through the second half of this year and that upward factors were expected to persist through year-end, even after the Chuseok holiday.

Choi Cheol, a professor of consumer economics at Sookmyung Women's University, said the late-1,400 won range still represents a high exchange rate. "While there are signs of some stabilization, it remains a burdensome level and will inevitably affect various costs, including raw material imports," he said.

Dining-out prices are also on the rise. According to the Korea Consumer Agency's price information portal, the average cost of a samgyeopsal meal (one serving, 200 grams) in Seoul last month was 21,321 won ($15), up 4.3% from the same month a year earlier. The average price of samgyetang rose 2.8% over the same period to 18,154 won, while knife-cut noodles climbed 3.6% to 10,038 won. Kimbap, a staple affordable food, jumped 5.9% to an average of 3,838 won.

Unstable raw material supply is a major factor behind rising dining-out costs. Eggs are a prime example: supply has been strained since a highly pathogenic avian influenza outbreak spread last winter. As of Thursday, the average consumer price of domestic eggs — a carton of 30 large eggs — stood at 7,309 won, up 4.7% from 6,984 won a year earlier. The government has pursued price-stabilization measures through imported eggs, but prices show no sign of coming down.

The producer price index, a leading indicator of consumer prices, has continued to post year-on-year gains at elevated levels. According to the Bank of Korea, the preliminary producer price index for June came in at 130.03, up 8.6% from the same month a year earlier — the second consecutive month of 8%-range increases, following May's 8.6% gain. The index was flat compared with the previous month for the first time in 10 months, but the year-on-year rate of increase is the highest since July 2022 (9.2%), a figure that cannot be ignored. Agricultural, forestry and fishery products rose 0.7%, led by livestock products, which gained 2.1%.

Choi said that agricultural, livestock and fishery products — the raw materials for food — have seen output decline both domestically and abroad due to climate change and pests, putting significant upward pressure on prices. He added that for processed food companies, rising labor costs on top of raw material costs are also pushing up production expenses. Kim Sang-bong, a professor of economics at Hansung University, said prices, once raised, do not come back down unless a major economic shock occurs. "Average prices will keep rising," he said.