Reassessing Inflation in South Korea: An Alternative Approach Using the Engel Curve

Abstract South Korea's inflation rate based on the consumer price index has remained stable at around 2 percent and was moderate even during the COVID-19 pandemic. Although average income adjusted for inflation has increased, public sentiment reflects concerns about the high cost of living and a decrease in disposable income. Using an Engel-curve based methodology, we find that from 2010 to 2021, the average annual increase in consumer prices ranged from 4.6 percent to 6.6 percent, two to three times higher than the official record. This study explores several contributing factors that explain this discrepancy and examines its implications for policy decision-making.