Mr. Yoo (68), who runs a kimchi stew restaurant in Gwanak-gu, Seoul, sighed on the 4th, saying, “After the Middle East war, as heating costs rose, the prices of greenhouse vegetables went up, pork prices jumped, and egg prices also climbed sharply,” and added, “All costs, including labor and rent, are rising, but with the economy weak, it is hard to suddenly raise the price of the stew.” Mr. A, who runs a beer pub in Mapo-gu, Seoul, lamented, “Because of the exchange rate, imported ingredients are rising steeply,” adding, “Dried filefish or monkfish jerky seems to have gone up by 30,000 to 40,000 won per box.”

The pain of the high exchange rate, high inflation, and high interest ratesthe ‘three highs’is concentrating on small business owners and ordinary citizens. The waves of the ‘three highs’ are higher than during COVID-19, prompting calls to look beneath growth that is being masked by the semiconductor boom. In particular, with interest rate hikes signaled, there are growing calls for the government to swiftly prepare measures to support vulnerable groups.

That day in the Seoul foreign exchange market, trading against the U.S. dollar opened at 1,530.0 won and closed at 1,529.7 won. That was up 13.3 won from the previous session close. In after-hours trading, it at one point broke through 1,540 won. This is the highest level in 17 years and 3 months since March 10, 2009 (intraday 1,561.0 won) during the financial crisis.

On a closing basis, the won·dollar rate has stayed in the 1,500-won range for 13 straight trading days and is inching upward. The government analyzed that a surge in dollar demand, driven largely by foreigners selling more than 3 trillion won of shares per day for 18 consecutive sessions in the stock market, had a big impact.

Prices are also rising. On the 2nd, the Ministry of Data and Statistics announced that consumer prices in May were up 3.1% year on year, widening after 2.0% in January and February, 2.2% in March, and 2.6% in April. Due to higher oil prices stemming from the Middle East war, petroleum product prices surged by as much as 24.2%.

In addition, the upper end of fixed-rate mortgage loans at major commercial banks has exceeded an annual 7% and is approaching 8%. Rates on unsecured personal loans are also nearing 6%. At a press conference on the 28th of last month, Bank of Korea Governor Shin Hyun-song effectively signaled a base rate hike in July. The Bank of Korea estimated that if lending rates rise by 0.25 percentage points, the interest burden on household loans will increase by 3.2 trillion won.

The problem is that the pain from the three highs is also becoming polarized. Those who hold shares in Samsung Electronics or SK hynix, received bonuses in the hundreds of millions of won, or hold dollar-denominated assets may not feel the difficulties of the three highs. On the indicators, the Korean economy looks good thanks to an ‘unprecedented’ memory semiconductor cycle, upward revisions to the growth outlook, and a surge in the KOSPI.

However, small business owners like Mr. Yoo or Mr. A who face higher import prices, young people who do not earn much but have jeonse and credit loans, and low-income households whose budgets are heavily weighted toward food, heating and cooling, and transportation costs are seen as unable to avoid the hit from high interest rates, high prices, and a high exchange rate.

Heo Jun-Young, a professor of economics at Sogang University, said, “Compared with three years ago, when the Ukraine war or COVID-19 had an impact, prices, the exchange rate, and interest rates are all higher now,” adding, “The pain economic agents feel will be no less than back then.” He added, “If the base rate rises going forward, the pain for borrowers with heavy household debt will grow,” and “the fruits of growth are going to a few while the wailing is coming from the other side.”

Lee Sang-min, a senior research fellow at the Nara Salim Research Institute, said, “Going forward, polarization of an unimaginable scale compared with the past will come,” adding, “The government needs to boldly expand existing good programs such as the Earned Income Tax Credit and the Basic Livelihood Security system.”