August inflation 2%, housing cost intentionally excluded, housing loan highest ever
In the calculation of the August price index, Korea's price system intentionally excluded housing cost for the purpose of establishing a high-speed growth of the Cold War system, and in August, housing loan rose to an all-time high and the consumer price index came out at 2.0%.
The increase in household loans by the five major banks in August was the largest ever, with the balance of household loans reaching 725.3642 trillion won and a sharp increase of 9.6259 trillion won compared to the previous month.
The consumer price index (CPI) in August was 114.54 (2020=100), up 2.0% from a year ago, and the lowest in 3 years and 5 months from 1.9% in March 2021.
The consumer price index announced by Statistics Korea on the 3rd has been excluding the cost of owning a house, which the US and Japan include in their indexes, from the beginning, and the increase in housing costs due to the government's economic stimulus to stimulate the real estate market was fundamentally excluded from the price index.
In August, the balance of housing mortgage loans (housing mortgage loans) including jeonse loans at the five major banks in the market was 568.6616 trillion won, an increase of 8.9115 trillion won from the previous month, which is the largest increase since 2016.
In particular, housing mortgage loans showed a surge of more than 10 times in August compared to the 849.4 billion won increase in credit loans in August, reaching 102.6068 trillion won, showing that the government is intentionally expanding the increase in housing prices. Kim Woong, Deputy Governor of the Bank of Korea, said on the 3rd after holding a ‘price situation review meeting’, “The people have suffered greatly due to high prices, but prices are stabilizing quickly compared to major advanced countries as disinflation progresses rapidly.” He added, “This month’s consumer price inflation rate has dropped to 2% as expected, with core prices continuing to stabilize and the base effect from the sharp rise in oil and agricultural product prices last year also taking effect. In the future, unless there is a major supply shock, the inflation rate will show a stable trend at a similar level to the current level for the time being.” He excluded ‘unjustified price fluctuations’ from prices.
In the US consumer price index, homeownership costs typically account for about 30%.
The San Francisco Federal Reserve Bank said in a report on the 3rd that the housing price inflation rate rose 5% in July from a year earlier, while the overall consumer price inflation rate was 2.9%.
Reuters reported that “Stubbornly high housing inflation has significantly added to overall U.S. price pressures in recent years, even as the Fed has aggressively raised borrowing costs to lower inflation,” adding that “housing inflation has declined in recent months, but it is still well above pre-pandemic levels and still accounts for a large portion of overall inflation, and the San Francisco Fed has indicated ‘the possibility of easing next year. ’”
In his Jackson Hole speech on the 23rd of last month, US Federal Reserve Chairman Powell stated, “Inflation has brought significant hardship to those who are least able to afford the high costs of necessities such as food, housing, and transportation,” and “High inflation has caused stress and unfairness, and this anxiety still remains today.” The National Association of Realtors reported on August 22 that existing home sales in the United States exceeded expectations in July after falling for four consecutive months as mortgage rates fell amid the possibility of a September rate cut.
The New York Times reported at the time that “home sales rose 1.3%, increasing sales to a seasonally adjusted annual rate of 3.95 million units,” and that “the average rate on a 30-year mortgage, a home mortgage, fell slightly to 6.46% on a weekly basis at the time, the lowest level since May 2023.”
Inflation in the United States began to rise as mortgage rates, which were around 3% at the end of 2021, began to rise as the Federal Reserve began raising interest rates to combat inflation, reaching levels not seen in 20 years. The 30-year rate exceeded 7%, and has been gradually easing since April of this year.
Regarding the US Department of Labor’s January price report, the New York Times highlighted the “cost of owning a home” by saying, “A measure that estimates the cost of renting a home someone owns (the owner’s equivalent rent) has risen,” and “investors have sharply downgraded the likelihood of a Fed rate cut from imminent, while stocks have fallen and central banks are unlikely to cut rates at their next meeting in March.” Regarding the US Department of Labor’s Bureau of Labor Statistics’ January Consumer Price Index (CPI), Reuters reported on February 13th under the title “Rising Rents Drive Up US Inflation,” “Housing costs, including rent, accounted for more than two-thirds of the CPI increase, up 0.3% in January after a 0.2% increase in December.” The Wall Street Journal reported on December 12 that “rising housing costs are expected to continue to push up inflation this year, and Federal Reserve officials want to see signs that price pressures are easing before they slow down their rate hikes,” and that “the Labor Department’s consumer price index showed that overall annual inflation rose to 8.6% in May, while core inflation, excluding unstable food and energy costs, was 6%.”
In the high-growth system model, Korea adopted a Cold War command economy that controlled wage increases in light industry high growth by excluding homeownership costs from the price index, imitating the economic systems of the United States and Japan.
When homeownership costs are reflected in prices, they usually rise by more than 30%, threatening the low-wage system of urban workers, and by excluding them, the price and interest rate system led to a dependence on the jeonse system, a variant of financial lending, leading to rapid growth in the real estate boom as a growth model for chaebols seeking rent (rental) profits.
In the establishment of a high-growth system based on low wages, the cost of owning a home was transferred from interest rates to the real estate market, and expensive urban housing became a means of increasing the added value of Seoul apartments by leading the rise in prices.
The Park Chung-hee regime’s high growth based on low wages is a typical example of a long-term system in which bureaucrats separated urban low wages and expensive real estate by setting interest rates 2-3%p higher than in the United States, and the periodic crackdown on private loans confiscated ordinary people’s capital due to the excessive issuance of private money in the jeonse system that was not included in the money supply.
Under the Moon Jae-in regime, the National Statistical Office stated that “housing was excluded because it is a speculative good and a capital good” as the reason for excluding owning a home from the consumer price index.
While advocating for “reform to pursue land profits,” the Moon Jae-in regime refused to reflect owning a home in the price index, imposed a high property tax and housing tax included in owning a home, and adopted a high-growth system under the low price index system.
Korea's bureaucrat-led planned economy is seen as the main culprit of 'low urban prices and excessive money supply', which excludes housing costs from price statistics, and 'establishing a conglomerate economic system with continued rises in real estate prices due to the addition of jeonse finance'.
<US Rent Rise, Price Control Out of Control Prolonged, Korea's Prices Excluding Housing Costs, February 14, 2024>
<Inflation's Main Critic Housing Costs Excluded from Prices Only in Korea, Strengthening Crisis, July 13, 2022>
<New Growth's Increased Money Supply Causes High Prices and Polarization Side Effects, September 3, 2020>