🚨 Heatflation Warning: Government Responds with Consumer Vouchers as Heat Wave Drives Up Prices

Today Korean Economic News | 2025.07.15

📌 Heat Wave Pushes Up Prices... Government Tries to Turn Around People's Lives with Consumer Vouchers

💬 Continuous heat waves have caused agricultural and marine product prices to jump, with June consumer inflation reaching 2.1%. Mackerel prices rose 16.2% and garlic prices increased 23.8%, showing that "heatflation" (Heat + Inflation) is becoming a real problem. The government plans to release stored agricultural products and increase imports to stabilize prices. At the same time, they decided to give consumer vouchers (150,000 to 550,000 won per person) to all citizens to help recover spending. Experts say that heatflation caused by climate change has become a new inflation risk factor, and long-term response strategies are urgently needed.

1️⃣ Easy to Understand

The continuing hot weather is making food prices rise quickly, putting more burden on families. The government decided to release stored goods and give consumer vouchers to all people to stop this.

A new term called "heatflation" has appeared. This combines the words "heat" and "inflation" (rising prices). When heat waves continue, crops cannot grow properly and farm animals get stressed, so production goes down. This means less supply in the market, which makes prices go up.

In the past few weeks, prices of foods we eat often have gone up a lot. Mackerel prices jumped over 16%, and garlic prices rose almost 24%. Eggs, rice, and pork prices also went up. This means shopping at markets or stores costs more money for families.

The government made two plans to fix this situation. First is to directly stabilize prices. The government will release rice, potatoes, and cabbage that they stored to increase supply. They will also import foods that are not enough from other countries. They also plan to work with big stores to have more discount sales.

Second is to help people spend more money. They will give consumer vouchers to all citizens. Depending on family income levels, each person can get from 150,000 won to a maximum of 550,000 won. These vouchers can be used at restaurants, cafes, and stores, which should help reduce living costs for ordinary people.

This is especially good news for small business owners who have had difficulties since COVID-19. When more people use consumer vouchers, it can lead to increased sales.

However, experts say that because of climate change, this kind of thing might happen again in the future. So we need not only short-term solutions but also long-term preparation.

2️⃣ Economic Terms

📕 Heatflation

Heatflation is when prices of agricultural and marine products rise sharply due to extreme weather like heat waves.

• It combines the words "Heat" and "Inflation."
• This is getting attention as a new type of price risk factor caused by climate change.
• The main causes are decreased crop harvests and problems in livestock production.

📕 Consumer Price Index (CPI)

The Consumer Price Index measures how much prices of goods and services that ordinary families buy have changed.

• It includes prices of food, housing costs, transportation costs, medical costs, and other daily necessities.
• It shows the increase rate compared to the same month last year as a percentage. Around 2% is considered appropriate.
• This is an important standard for the Bank of Korea's monetary policy and government economic policy decisions.

📕 Consumer Vouchers

Consumer vouchers are purchasing power support tools that the government gives to citizens for economic stimulus and people's livelihood stability.

• They provide discount benefits when buying goods or using services within a certain amount limit.
• They limit usage to specific industries or regions to focus policy effects.
• They can achieve two goals: boosting consumption and increasing sales for small business owners.

📕 Reserve Stock

Reserve stock means agricultural and marine products that the government stores in advance for price stability and supply control.

• This includes major agricultural products like rice, potatoes, cabbage, and garlic.
• They release these to the market during natural disasters or supply imbalances to stabilize prices.
• It is divided into national reserves and private company reserves, with the government managing them together.

3️⃣ Principles and Economic Outlook

✅ How Heatflation Happens and Its Economic Impact

• Let's analyze the specific effects of heat waves on prices and their economic meaning.

  • First, supply shocks in agricultural and marine products are the direct cause of heatflation. July's average temperature was 3-4 degrees higher than normal, exceeding 35 degrees Celsius, seriously affecting crop growth. Leafy vegetables like cabbage, lettuce, and spinach are especially vulnerable to high temperatures, with harvests down 20-30%. In livestock farming, stress from heat waves has reduced egg production and meat production. In fishing, rising sea water temperatures have kept fish catches at only 70% of normal levels, driving up prices of mackerel and hairtail. This supply shortage is hard to solve quickly, so price increase pressure is expected to continue for a while.

  • Second, heatflation hits low-income families harder, showing regressive characteristics. Agricultural and marine products are necessities that people must consume regardless of income level. When prices rise, the burden on low-income families becomes relatively bigger. According to Statistics Korea data, food spending makes up 16.8% of expenses for the bottom 20% income group, while it's only 11.2% for the top 20%. So even with the same amount of food price increase, low-income families feel much more burden. This can deepen income inequality and increase social conflict, which is why the government needs to respond actively.

  • Third, there's a risk that heatflation could spread to general inflation. Rising agricultural and marine product prices can lead to higher restaurant costs, which can then connect to higher delivery fees and labor costs as secondary effects. Also, consumers might hoard daily necessities expecting future price increases, or companies might raise prices of other products citing increased costs. The Bank of Korea is focusing on managing inflation expectations to block these secondary effects, but if heatflation continues long-term, it could also limit monetary policy operations.

• Heatflation is a new economic risk factor in the climate change era. It's not just a temporary phenomenon but a long-term challenge that needs structural responses.

✅ Effects and Limitations of Government Response Policies

• Let's comprehensively evaluate the effectiveness and side effects of price stabilization policies and consumer voucher distribution.

  • First, releasing reserve stocks and expanding imports are effective for short-term price stability. The government decided to supply an additional 150,000 tons of national reserve rice and 200,000 tons of private reserve rice to the market. They also decided to urgently import 30,000 tons of potatoes and 20,000 tons of onions, and temporarily lower quota tariffs to reduce import costs. These measures are actually showing effects in suppressing price increases in a short time. For rice prices, they fell about 500 won per 10kg within a week after announcing the release of reserve stocks. However, these policies are likely to only temporarily ease the problem rather than solve the fundamental supply shortage.

  • Second, giving consumer vouchers helps boost consumption and stabilize people's lives, but the fiscal burden is large. If they give consumer vouchers worth an average of 300,000 won to 50 million people, it would require a total fiscal input of 15 trillion won. This is about 2.5% of the government's total budget, which is a considerable fiscal burden. Consumer vouchers directly lead to consumption and have big economic stimulus effects, but we must also consider long-term burdens from expanding fiscal deficits. Also, there could be gaps between industries where voucher use is concentrated and those that don't benefit, raising fairness issues.

  • Third, there are concerns about policy effectiveness sustainability and market distortions. Reserve stocks are limited, so they cannot be released continuously. Import expansion also has limits when exchange rates fluctuate or international prices rise. For consumer vouchers, consumption might shrink again when the usage period ends, so they might not be a fundamental solution. Also, continuous government market intervention could distort market functions and weaken farmers' incentives to voluntarily increase production. Therefore, long-term supply capacity expansion and market function strengthening measures should be implemented along with short-term measures.

• The government's response policies are effective in the short term, but should be operated at a level that complements market functions from a long-term perspective to secure both fiscal soundness and policy effectiveness.

✅ Agricultural Policy and Long-term Response Strategies for the Climate Change Era

• Let's explore ways to prevent heatflation recurrence and build climate-adaptive agricultural systems.

  • First, developing and spreading climate change-adaptive agricultural technology is urgent. We need to create agricultural structures strong against climate change through developing new varieties with heat and disease resistance, spreading smart farm technology, and building precision agriculture systems. Especially, automated greenhouse management systems using AI and IoT can enable stable production regardless of outside temperature. The government plans to expand smart farm area to 15,000 hectares by 2030, three times the current size. But this requires systematic farmer education, technical support, and initial investment support.

  • Second, we need to improve agricultural product distribution structures and expand storage facilities. Current agricultural product distribution has many intermediate stages, causing high price volatility and high logistics costs from production areas to consumption areas. We need to improve distribution efficiency through activating direct farm-to-consumer sales, building online distribution networks, and expanding cold chain facilities. We also need to increase storage capacity of existing reserve facilities and distribute them by region for quick supply during emergencies. Support for private reserve companies should also be expanded to supplement the limitations of national reserve stocks.

  • Third, international cooperation and securing diversified import sources are important. Since domestic production alone cannot completely solve supply instability from climate change, securing stable import sources is essential. We need to diversify import structures concentrated on specific countries and strengthen agricultural cooperation with regions relatively less affected by climate change. It's also important to build hedging systems against international agricultural product price fluctuations and secure price stability through medium and long-term import contracts. Expanding tariff benefits using FTAs would also help reduce import costs.

• Since climate change is an irreversible reality, fundamental improvement of the agricultural sector along with building stable supply chains through international cooperation is key to responding to heatflation.

4️⃣ In Conclusion

The emergence of heatflation is a warning signal that climate change's impact on our economy is becoming real. This is not just temporary price increases, but a new type of structural risk factor that we must recognize and respond to.

The government's immediate response measures of releasing reserve stocks and giving consumer vouchers will help stabilize people's lives and recover consumption in the short term. Especially for low-income families and small business owners, this can provide real help, so it's evaluated as an appropriate policy decision.

But what's more important is long-term preparation to prevent this phenomenon from repeating. Extreme weather caused by climate change is expected to appear more often and more strongly in the future. Therefore, we need fundamental improvements like developing climate-adaptive agricultural technology, spreading smart farms, and improving distribution structures.

Also, since domestic production alone has limits, securing stable import sources and strengthening international cooperation are important. We need to diversify import structures concentrated on specific regions or countries and expand agricultural cooperation with regions less affected by climate change.

Consumers also need to adapt to these changes. It's important to create sustainable consumption patterns through expanding seasonal agricultural product consumption, reducing food waste, and using local food.

Heatflation is a crisis, but it's also an opportunity to make our agriculture and food systems stronger and more sustainable. Government, businesses, and consumers need to work together wisely to build new systems suitable for the climate change era.