(EDITORIAL from Korea Herald on Sept. 2)

Economic recoveries often appear more positive from a distance, but South Korea is experiencing an uneven recovery. The Bank of Korea recently raised its benchmark interest rate by 25 basis points to 3% and increased its 2026 growth forecast to 3.3%. However, many households are facing a harsher economic reality.

Inflation has been rising, with consumer prices increasing by 2.8% in July from a year earlier, and core inflation reaching a six-month high of 2.6% in December 2023. Essential food prices have seen particularly steep rises, with rice up 13.2%, potatoes 11.1%, and eggs 9% in the second quarter alone. Low-cost meals like gimbap have also seen faster price increases than the overall consumer price index.

These price hikes disproportionately affect poorer households, as necessities make up a larger portion of their income. Food expenses rose 6.9% among households in the second-lowest income quintile, compared to just 1.8% for the highest-income 20%.

Interest costs have also widened the gap between high- and low-income households. Monthly interest expenses for the bottom 20% of households jumped 36.1% year-on-year in the second quarter, nearly three times the 12.1% increase for all households.

Debt adjustment programs have become more common, with nearly 97,200 people enrolling in such programs during the first half of this year. Among borrowers in these programs, applications for small emergency loans reached a quarterly high of 14,894 in the second quarter, the highest since 2022.

The Bank of Korea's tightening policies aim to prevent further inflation as the economy strengthens. However, the government's efforts to ease financial burdens, such as a planned 6 trillion won debt relief program for struggling small businesses and expanded lending from financial institutions, may counteract the effects of monetary tightening. This creates a challenging policy loop where fiscal measures boost demand, but monetary policy raises the cost of money.

This uneven policy approach risks burdening those least able to absorb higher interest costs with the costs of both monetary tightening and fiscal stimulus. External pressures, such as a potential increase in US interest rates, could further complicate the situation, widening the gap between US and Korean interest rates and putting additional pressure on the won and import costs.

Korea's export sector may continue to grow, but a booming export economy does not necessarily translate into a healthier domestic consumer economy. The government must provide more precise fiscal support to households most in need, particularly focusing on food prices and distribution. Debt programs should help viable borrowers regain financial stability and allow unviable businesses to close, rather than merely extending loans.

The semiconductor boom has given Korea's macroeconomic numbers a favorable appearance, but household finances reveal a more sobering picture. When groceries and debt costs rise, aggregate growth offers limited protection to those near the margin. The recovery may look broad in national accounts, yet its costs remain unevenly distributed among households.