🚨 Rising Restaurant Prices and Weak Domestic Demand: Signs of Economic Imbalance

Today Korean Economic News | 2025.05.14

📌 Restaurant Prices Rising While Domestic Recovery Lags in Q1... Prices Up Nationwide

💬 In the first quarter of 2025, consumer prices rose in all 17 provinces and cities across Korea. Restaurant meals and processed food prices were the main drivers, with Sejong (2.6%), Gangwon (2.3%), and North Jeolla (2.3%) exceeding the national average increase (2.1%). Retail sales remained flat compared to the same period last year, but five regions including Jeju (-7.0%) and Daejeon (-2.9%) saw decreases. Construction orders dropped by 7.7% nationwide, showing continued weakness in domestic demand.

1️⃣ Simple Explanation

In the first quarter of 2025, prices are rising nationwide while the economy isn't recovering, creating a double burden. Food costs are especially high, putting pressure on household finances.

This year, prices have increased in every region of Korea. The national average inflation rate was 2.1%, but some regions like Sejong (2.6%), Gangwon (2.3%), and North Jeolla (2.3%) recorded even higher rates. Restaurant prices and processed food costs have risen significantly, increasing the food budget burden for families. In Seoul, a single portion of samgyeopsal (pork belly) now costs over 20,000 won, and common restaurant dishes like kimchi stew have surpassed 10,000 won, showing the continuing "high-flying restaurant prices."

While prices are rising, consumer spending isn't recovering. First-quarter retail sales nationwide remained about the same as last year, and five regions including Jeju (-7.0%) and Daejeon (-2.9%) actually saw decreases. Construction orders, which reflect the building industry's health, dropped by 7.7% nationwide, indicating continued weakness in domestic economic activity.

Several factors are behind this situation. Farm and livestock prices have increased, along with higher minimum wages and rising rent costs, all adding to business owners' expenses. Also, America's protective trade policies and global supply chain disruptions have pushed up import prices. Meanwhile, high interest rates are increasing loan payment burdens, and the struggling real estate market has reduced household spending power.

The government is trying to boost the economy and stabilize prices through a 12 trillion won supplementary budget, but many market experts question whether this will be effective. Some argue that "at least 20 trillion won in additional budget is needed."

Both households and small business owners are struggling with this double burden of rising prices and weak economic activity, with regional differences becoming more apparent. A comprehensive approach is needed to address these economic imbalances.

2️⃣ Economic Terms

📕 Consumer Price Index

The Consumer Price Index measures price changes in goods and services that typical households purchase.

• It shows price changes compared to a base year (currently 2020=100) and is published monthly by the Statistics Office.
• It's expressed as a percentage increase compared to the same month of the previous year, also called the inflation rate.

📕 Retail Sales Index

The Retail Sales Index shows how much consumers are buying.

• It reflects sales changes at department stores, supermarkets, convenience stores, online shopping malls, and other retail outlets.
• It's an important indicator of domestic economic conditions and consumer confidence.

📕 Construction Orders

Construction Orders indicate how many building projects have been commissioned.

• This represents the total value of orders for housing, commercial facilities, and civil engineering projects.
• It serves as a leading indicator to predict future construction activity and investment trends.

📕 Domestic Demand

Domestic demand includes all consumption and investment that takes place within the country.

• It consists of household spending, business equipment investment, and construction investment.
• It shows the basic strength of the domestic economy - stronger domestic demand means greater resistance to external economic shocks.

3️⃣ Principles and Economic Outlook

💡 Features and Causes of Regional Price Increases

• Let's look at why inflation rates differ by region and what this means.

  • First, regional price increases reflect each area's economic structure and characteristics. The higher inflation rates in Sejong (2.6%), Gangwon (2.3%), and North Jeolla (2.3%) compared to the national average (2.1%) are related to these regions' economic structures. In Sejong, continuing population growth has pushed up housing and education costs. Gangwon, as a tourist region with many service businesses, has been greatly affected by rising labor costs. North Jeolla, while an agricultural production area, has seen price increases due to poor harvests from climate change. In contrast, big cities like Seoul (2.0%) and Busan (1.9%) showed relatively lower inflation rates because of active competition and more efficient distribution systems.

  • Second, restaurant and processed food price increases are happening nationwide but with regional differences. Restaurant prices rose by 3.2% nationally, but tourist areas like Jeju (3.8%) and Gangwon (3.6%) saw even higher increases due to tourist demand and seasonal factors. Processed food prices rose by an average of 2.9% nationwide due to higher raw material and labor costs, with smaller cities showing larger increases than major cities because of higher distribution costs and less competition. The combination of rising food costs, increased wages, higher rent, and utility bills has forced restaurant owners to raise their prices.

  • Third, regional price differences can lead to lifestyle gaps and economic inequality. Price burden differences across regions can worsen living standard gaps within the country. When prices rise more in regions with lower incomes, the resulting drop in purchasing power can accelerate local economic decline. Low-income households and those with fixed incomes are hit harder by price increases regardless of location. If this continues, economic inequality between regions and social classes could worsen, requiring careful government policy responses.

• Regional price increases are more than just economic indicators - they signal important information about each region's economic structure and living conditions. We need both nationwide price stabilization policies and region-specific measures.

💡 Structural Factors Behind Weak Domestic Demand and Recovery Prospects

• Let's analyze why domestic economic activity isn't recovering and what we can expect going forward.

  • First, weak domestic demand is confirmed by several economic indicators. First-quarter retail sales nationally remained flat compared to last year, but five regions saw decreases: Jeju (-7.0%), Daejeon (-2.9%), North Chungcheong (-1.8%), Ulsan (-1.5%), and Busan (-0.7%). Jeju's large drop was due to fewer tourists and reduced local spending. Construction orders decreased by 7.7% nationwide, mainly because of the real estate market slump and high interest rates discouraging investment. The Consumer Confidence Index registered 95.3, below the neutral point of 100, showing consumers remain pessimistic about the economy. These indicators all point to generally weak domestic economic activity.

  • Second, there are various structural reasons for the weak domestic demand. High interest rates are a major obstacle to economic recovery. The 3.25% base rate increases interest burden for households and businesses, reducing consumption and investment. Household debt at about 104% of GDP, much higher than the OECD average, makes this interest burden even greater. Rising living costs, including food expenses, are reducing real disposable income, creating a negative cycle of reduced spending. Population decline and aging are also long-term structural factors potentially shrinking the domestic market. External uncertainties like America's strengthened protectionist policies and trade tensions with China are also making businesses hesitant to invest.

  • Third, despite policy efforts to boost domestic demand, dramatic improvement in the short term seems unlikely. The government's 12 trillion won supplementary budget to stimulate spending represents only about 0.5% of GDP and is expected to raise economic growth by just 0.1 percentage points. The Bank of Korea is considering lowering interest rates to boost domestic activity but must be cautious due to the interest rate gap with the United States. Longer term, we need structural reforms like nurturing new industries to create jobs, improving service sector productivity, and strengthening the small business and startup ecosystem. Efforts to increase wages and improve income distribution to expand middle-class spending power must also happen in parallel.

• Weak domestic demand should be approached as a structural problem, not just a temporary economic fluctuation. We need comprehensive measures including interest rate policy, financial support, regulatory reform, and improved income distribution to strengthen the foundation of domestic demand.

💡 Response Strategies for Households and Small Business Owners

• Let's explore survival strategies for households and business owners facing rising prices and weak domestic demand.

  • First, households need sensible consumption habits and financial management. During times of rising prices, adjusting spending patterns is essential. For example, when eating out becomes more expensive, finding affordable restaurants or cooking more at home ("home cooking") can help. Using discount events at large supermarkets or online stores, buying ingredients in bulk for freezing, and other food budget-saving efforts are helpful. Setting monthly spending plans and cutting unnecessary expenses is important. During inflation, distributing investments across inflation-resistant financial products or real assets may be better than holding cash. Above all, this is a time when actively working to increase income through skill development or side jobs is necessary.

  • Second, small business owners need cost-cutting and differentiation strategies. Restaurant and other small business owners can't pass all their rising costs to customers through price increases. Menu simplification, focusing on popular items, and reducing food waste are necessary cost-cutting efforts. Installing self-ordering kiosks or using delivery apps can help manage labor costs efficiently. With increasing competition, developing unique menu items or differentiating service is essential to attract customers. Especially with the MZ generation's emphasis on "value satisfaction" (psychological satisfaction relative to price), strategies offering special experiences or value can be effective. Taking advantage of government support policies and financial benefits for small businesses is also important.

  • Third, the government needs to provide region-specific and industry-specific support. Because situations and causes vary by region and industry despite nationwide price increases and weak demand, tailored measures are needed. Regions with high inflation rates need policies for stabilizing agricultural supply and improving distribution systems, while regions with declining retail sales need local consumption promotion campaigns and tourism revitalization. Direct livelihood support like energy vouchers and food assistance for low-income and vulnerable groups should also be expanded. For small business owners, loan support, tax benefits, and rent stabilization policies are needed, along with business restructuring or career change consulting and education.

• Both households and small business owners are going through difficult times with the double burden of rising prices and weak domestic demand. This challenging period can be overcome when smart response strategies tailored to each situation are combined with effective government support policies.

4️⃣ In Conclusion

The nationwide rise in prices and weak domestic demand seen in the first quarter of 2025 signal an imbalanced growth in our economy. The situation where prices are rising in all regions while consumption and investment aren't recovering is putting pressure on both households and businesses.

Rising restaurant and processed food prices are particularly increasing basic living costs for households. With samgyeopsal (pork belly) now costing over 20,000 won per portion and ordinary restaurant meals well over 10,000 won, households are changing their consumption patterns by reducing eating out and increasing home cooking to save on food expenses.

The weak domestic demand shown by decreasing retail sales and construction orders stems from multiple factors: high interest rates, rising prices, the real estate market slump, and external uncertainties. The different levels of retail sales decline across regions like Jeju and Daejeon reflect each region's economic structure and characteristics.

The government is trying to boost domestic activity and stabilize prices through a 12 trillion won supplementary budget, but fundamental economic improvement requires a comprehensive approach including interest rate policy, regulatory reform, and improved income distribution structures. Region-specific policies that consider different local economic conditions are especially needed.

Households and small business owners need to prepare their own response strategies to wisely overcome this difficult period, including rational consumption, cost reduction, and differentiation strategies tailored to their situations.

Ultimately, overcoming the economic challenges of rising prices and weak domestic demand requires joint efforts from the government, businesses, and households. It's important now to achieve balanced growth through both short-term responses and long-term improvements to the economic structure.