A Review of the Rent Component in the Consumer Price Index in South Korea: Focusing on the Incorporation of a Transaction-Based Index

A Review of the Rent Component in the Consumer Price Index in South Korea: Focusing on the Incorporation of a Transaction-Based Index Soyoung Lee (Seoul National University Graduate School of Environmental Studies, PhD Candidate) Abstract The Consumer Price Index (CPI) serves as a critical reference for both national policy and private sector decision-making. Within the CPI of South Korea, the Housing Cost Index holds a 9.91% weight, playing a key role in reflecting housing costs as a single largest component of the CPI figure. However, concerns have been raised regarding the accuracy of the rent index in capturing actual housing expenses. There are two primary issues in the current CPI housing cost measurement. First, a potential discrepancy exists between the CPI rent index and actual housing costs. Despite rising market rental prices, the CPI rent index may not fully reflect these increases due to factors such as small sample, survey methodology, reporting delays, and lease contract structures. Second, the treatment of owner-occupied housing cost(OOH) in CPI calculations remains a critical issue. While many countries incorporate OOH into their CPI, South Korea only provides an OOH-inclusive index as a supplementary indicator. Since OOH represents the opportunity cost of homeownership, its inclusion in the CPI could enhance the accuracy of housing cost assessments. A standardized approach, aligned with European practices, may be necessary to define and integrate OOH appropriately. This study aims to analyze the discrepancy between the CPI rent index and actual housing costs while evaluating the feasibility of a market transaction-based rent index. The research proceeds as follows: first, a review of the theoretical background and previous studies will examine rent index methodologies across major economies and identify factors contributing to discrepancies. Then, we explore the potential integration of OOH into the CPI and assess alternative methods for constructing a transaction-based rent index.