South Korea’s electricity rate is now set to rise by 5 won (0.4 cent) per kWh, starting from July, to grapple with soaring fuel costs and snowballing losses at state run utility Korea Electric Power Corp. But it is doubtful whether this type of intermittent electricity rate hike could solve the fundamental energy problem facing the nation, much less the long-distorted pricing structure of Kepco. At the same time, the rate increase is feared to accelerate the buildup of inflationary pressure in a way that will make it harder for policymakers to tame consumer prices.

The rate hike will place an additional burden on both households and companies beleaguered by a fast paced rise in prices across the board. Under the new pricing plan, a household with four members will see an increase of 1,535 won per month in the electricity bill. That is a 4.3 percent increase from the current rate, but 11.6 percent, or 4,574 won per month, from a year earlier. Adding to the price pressure is the planned 7 percent hike in the gas rate. Compared to a year earlier, gas bills will jump by 19.5 percent from July. Other public utility fees are expected to go up.

Since utility rate increases tend to have a strong impact on consumer prices broadly, the Finance Ministry was extremely reluctant to raise electricity rates. But it has been speculated that the Yoon Suk yeol administration will be pushed to allow Kepco to increase the rate from July, given the widening mismatch between production costs and electricity rates, especially after Russia invaded Ukraine in February this year. The logic is that Kepco’s mounting losses are untenable. The state-run firm suffered a massive operating loss of 7.8 trillion won in the first quarter of this year.

It recorded a total of 5.9 trillion won in operating loss last year. During the previous administration under President Moon Jae-in, Kepco’s debt climbed by 34 trillion won as he pushed the controversial nuclear power phase-out policy that resulted in higher production costs while stubbornly freezing rates. The Yoon administration may feel the blame it would get from the rate hike is unfair since the previous administration artificially passed the burden. Nonetheless, the dreadful prospect of a 6 percent inflation is looming large as a result of the higher electricity rate as Finance Minister Choo Kyung-ho earlier warned for the June-August period. The country’s consumer prices jumped 5.4 percent on-year in May, the fastest rise in almost 14 years.