🚨 20 Trillion Won Support Program Begins: Can Second Budget Fix Food Prices and Boost Economy?

Today Korean Economic News | 2025.06.10

📌 After First Budget of 13.8 Trillion Won, Government Plans 20 Trillion Won Second Budget - Food Prices and Weak Economy Are Top Priorities

💬 The government is working on a second supplementary budget to stabilize food prices and help the economy recover. Consumer prices in May rose 1.9% compared to last year, showing stability. However, processed foods and restaurant prices that people really feel are still rising at 3%. The government is considering at least 20 trillion won for a second budget after spending 13.8 trillion won on the first one. They want to focus on stabilizing food prices and boosting domestic spending. While overall prices are calming down due to lower oil prices and exchange rates, food prices that affect daily life continue to rise, requiring strong government action.

1️⃣ Easy Explanation

The government is preparing a second extra budget this year to reduce our living costs. But shopping at the supermarket is still expensive.

"Supplementary budget" might sound complicated, but it simply means the government decided to spend more money than originally planned. It's like when a family needs to spend extra money for unexpected expenses.

This year, the government already spent 13.8 trillion won in the first extra budget. Now they plan to spend another 20 trillion won in the second budget. That's over 33 trillion won total being used to help the economy recover.

The price situation is complex. Overall consumer prices rose only 1.9%, which is relatively stable. This happened because oil prices and exchange rates went down. But the "food prices" we actually feel when grocery shopping have gone up a lot.

Especially processed foods and restaurant prices rose more than 3%, making life more expensive for ordinary people. Everything from ramen, bread, and milk to chicken and pizza got more expensive. We feel these price increases more because we buy these items often.

The government plans to focus on stabilizing food prices and boosting domestic consumption in the second budget. They want to fix food prices through improving agricultural distribution, supporting food companies, and helping small businesses.

However, experts have different opinions about how effectively these measures can control food prices. Price increases have many complex causes.

The key question is whether the government's large budget spending can actually reduce our daily living costs.

2️⃣ Economic Terms

📕 Supplementary Budget

A supplementary budget means the government changes its original budget to spend more or less money.

• Created when economic recession, natural disasters, or sudden economic changes happen.
• Needs approval from the National Assembly and usually aims to boost the economy and support people's lives.
• Korea's first 2025 budget was 13.8 trillion won, and the second is being considered at 20 trillion won.

📕 Food Prices

Food prices mean the cost of food items that people buy regularly in daily life.

• Includes basic foods like rice, ramen, bread, milk, eggs and restaurant meals.
• Affects how expensive life feels more than overall consumer prices.
• Processed foods and restaurant prices are currently rising at 3%, creating a big burden for ordinary people.

📕 Consumer Price Index

Consumer price index measures price changes of goods and services that households buy in daily life.

• Uses 2020 as the base year (100) to show current price levels.
• In May 2025, it rose 1.9% compared to the same month last year, showing relative stability.
• Important for central bank monetary policy and government economic policy decisions.

📕 Domestic Demand Boost

Domestic demand boost means policies to increase domestic consumption and investment to improve the economy.

• Main tools include promoting private consumption, encouraging business investment, and expanding government spending.
• Important task for increasing stability of Korea's export-dependent economy.
• One of the key goals of the second budget, with 20 trillion won being considered.

3️⃣ Analysis and Economic Outlook

✅ Why Food Prices Keep Rising While Overall Prices Stabilize

• Overall prices are stabilizing, but only food prices keep going up - this strange situation is happening.

  • First, falling oil prices and exchange rates are helping stabilize overall prices. In 2025, international oil prices fell below $70 per barrel, stabilizing petroleum product prices. Also, the Korean won became relatively stable against the dollar, reducing the cost burden of imported raw materials. These factors helped keep overall consumer price increases to 1.9%. But this effect mainly came from savings in energy-related costs like transportation and heating. Transportation sector prices actually fell 1.3% compared to last year, and housing/utilities/electricity sector prices only rose 1.9%.

  • Second, processed food and restaurant price increases come from structural factors. Raw material prices for processed foods like flour, sugar, and cooking oil remain high. Especially wheat prices are still high due to the Ukraine war, and agricultural production volatility has increased due to climate change. Added to this, rising labor costs are continuously pushing up processed food prices. For restaurant prices, minimum wage increases, rising rent, and increasing raw material costs create a triple burden. Food and accommodation sector prices rose 3.3% compared to last year, which is 1.4 percentage points higher than overall price increases.

  • Third, distribution system problems accelerate food price increases. For agricultural products, prices rise significantly as they pass through multiple distribution companies from producers to consumers. Especially fees from large supermarkets and online shopping malls, logistics costs, and packaging costs are reflected in final consumer prices. For processed foods, large companies have strong market power, limiting price competition. Major processed food markets like ramen, snacks, and dairy products are concentrated among a few large companies, making price increases easy.

• The dual price structure limits government policy effectiveness. Overall prices are stable, creating conditions for interest rate cuts, but the living cost burden that ordinary people feel remains high, creating a policy dilemma.

✅ Policy Effects and Limitations of the Second Budget

• Let's analyze how the 20 trillion won second budget will affect food prices and economic recovery.

  • First, the economic stimulus effect of large-scale fiscal input may be limited. This year, 13.8 trillion won was already invested in the first budget. Adding the second budget creates over 33 trillion won in additional spending. This equals about 1.7% of annual GDP, so significant economic stimulus effects can be expected. However, Korea's current economic problem is not simple demand shortage but structural growth slowdown. Low birth rates, aging population, declining productivity, and external uncertainty are problems that cannot be solved with fiscal spending alone. Therefore, there may be short-term economic stimulus effects, but limitations exist in establishing sustainable growth foundations.

  • Second, questions arise about the effectiveness of policy tools for food price stability. The government is trying to control prices through improving agricultural distribution systems, supporting food companies, and providing discount coupons. However, the fundamental causes of price increases - rising raw material costs, increasing labor costs, and distribution margins - are structural problems difficult to solve short-term. In the past, the government announced price stability measures several times, but actual effects were limited. Especially in a market economy, price controls can create side effects, requiring careful approaches. Temporary discount benefits or subsidies may have short-term effects but are unlikely to lead to fundamental price stability.

  • Third, concerns about fiscal health deterioration are growing. Consecutive large-scale budgets are expected to rapidly increase national debt this year. The first budget alone raised the national debt ratio to 48.4% of GDP. Adding the second budget could bring it close to 50%. This is very close to the government's fiscal rule standard of 50%. Especially considering increasing welfare spending due to aging and weakening tax base due to declining potential growth rate, fiscal capacity could be greatly constrained. This could burden future generations, requiring careful fiscal management.

• The second budget will help short-term economic stimulus, but more fundamental policy changes are needed to solve structural problems and achieve sustainable growth.

✅ Future Price Outlook and Policy Direction

• Let's look at future outlooks for food prices and overall prices, and necessary policy directions.

  • First, second-half prices will show complex patterns with both stabilizing and rising factors. Stabilizing factors include possible further drops in international oil prices, slower price increases due to base effects, and demand contraction due to economic slowdown. The Bank of Korea forecasts 2025 annual consumer price increases at 1.7%, suggesting no major changes from current levels. However, rising factors are also significant. These include expanded agricultural price volatility due to climate change, raw material price instability due to geopolitical risks, and continued service sector labor cost increases. Especially if extreme weather like summer heat waves or heavy rains occurs, agricultural prices could surge rapidly.

  • Second, supply chain innovation and distribution system improvement are key to food price stability. Fundamental system improvements are more important than government one-time support. For agricultural products, direct delivery systems from production areas to consumption areas need expansion, and intermediate distribution stages should be reduced. For processed foods, small and medium enterprise market participation should increase to promote competition, and large company monopoly abuse should be checked. Also important are distribution efficiency using digital technology and logistics cost reduction through eco-friendly packaging development. Long-term, food supply stability should be enhanced through smart farms and alternative food development.

  • Third, harmonious operation of fiscal and monetary policy is important. Currently the government is pursuing expansionary fiscal policy, while the Bank of Korea maintains careful monetary policy for price stability. If prices stabilize near the target level (2%) in the future, conditions for interest rate cuts could be created. However, if large-scale fiscal expansion and interest rate cuts happen simultaneously, side effects like rapid asset price increases or household debt growth are concerning. Therefore, close policy coordination between the government and Bank of Korea is needed. Especially comprehensive consideration of real estate market stability, household debt management, and financial system stability is required.

• Ultimately, sustainable price stability requires long-term policies that innovate economic structure itself, beyond short-term symptomatic treatments.

4️⃣ Conclusion

The government's second budget push shows determination to protect people's lives in difficult economic times, but has limitations as a fundamental solution. Despite over 33 trillion won in large-scale fiscal input, food price increases and economic slowdown problems are not easily solved.

The price situation is very complex. Overall consumer prices show relatively stable patterns at 1.9% increase thanks to falling oil prices and exchange rates. However, food prices that ordinary people actually feel continue rising at 3%, increasing living cost burdens. This dual price structure creates big dilemmas for policy authorities.

Careful evaluation is needed regarding second budget effects. Short-term consumption promotion and economic stimulus will help somewhat. However, fundamental problems facing Korea's economy - structural growth slowdown, declining productivity, and population aging - cannot be solved with fiscal spending alone. Rather, excessive fiscal expansion could burden future generations and harm fiscal health.

More fundamental approaches are needed to solve food price problems. Rather than one-time discount coupons or subsidies, efforts to innovate entire systems are important - improving agricultural distribution systems, promoting competition in processed food markets, and using digital technology for distribution efficiency.

Above all, the government should establish policies from long-term perspectives rather than pursuing short-term popularity. More urgent tasks include harmonious operation of fiscal and monetary policy, expanding growth potential through structural reforms, and improving productivity through innovation.

Ultimately, for the second budget to succeed, it must be used not just to spend money but to improve our economic structure and build future growth foundations. Citizens should also work together to overcome difficult times through wise economic activities while watching government policies.