GYEONGGI PROVINCE — The Bank of Korea warned on June 17 that large performance bonuses issued to tech industry workers could increase wage growth and push inflation above its 2% target. The central bank noted a rise in luxury spending in Gyeonggi Province, where major technology companies are located.

The central bank stated that inflation this year has primarily resulted from energy price increases tied to the Iran war. The central bank projects full-year inflation to reach 2.7%, exceeding its target. The bank typically does not consider bonuses to be major contributors to demand pressure because they are not permanent income increases.

SK Hynix agreed in September to allocate 10% of its operating profits as bonuses for its workers. Similarly, Samsung Electronics agreed to allocate 10.5% of its semiconductor operating profits as special bonuses for chip workers. A union source indicated that a memory chip worker with a base salary of 80 million won could receive a bonus of approximately 626 million won this year. Employees at SK Hynix could receive bonuses exceeding 700 million won if the company achieves an annual profit of 250 trillion won this year.

Bank of Korea Deputy Governor Lee Jiho stated, "Sales have increased significantly in places such as Suwon and luxury goods sections of department stores, and this could gradually spread further." The bank reported that card spending growth this year was higher in areas near semiconductor facilities and adjacent residential areas in Gyeonggi Province compared to other regions. Luxury consumption increased in these southern Gyeonggi regions, and tech industry workers purchased items such as bags, jewelry, and watches at department stores.

A Shinsegae branch in Gyeonggi Province reported a 53.6% year-on-year increase in luxury sales in May. During the same period, luxury jewelry sales at this branch increased by 146.3% and luxury watch sales increased by 85.3% year-on-year. Overall store sales at this Shinsegae branch increased by 19% year-on-year in May.

The central bank stated, "When special bonuses expand unusually and substantially, wage growth could spread to other sectors, significantly increasing both supply- and demand-side inflationary pressures." It added, "In particular, because recent IT-sector performance bonuses have been paid on a highly exceptional scale, the possibility that their actual impact could be larger than expected cannot be ruled out."

No independent assessment was available for this report.