A menu board introducing a wide variety of Korean dishes in foreign languages is shown on the widow of a restaurant in Seoul's popular shopping area of Myeong-dong, March 27. Yonhap

Soaring inflation and the subsequent decrease in sales are forcing heavily indebted small business owners in Korea into a dilemma where they are prepared to accept higher interest rates if they can aid in controlling inflation.

Korea's year-on-year consumer price growth surpassed 3 percent for the second straight month in March, after briefly easing below the mark in January for the first time in six months.

In February, the prices of food and non-alcoholic beverages in Korea rose 4.5 percent compared to a year ago, marking the third-highest increase among OECD member states, following Turkey (up 71.12 percent) and Iceland (up 7.52 percent), according to OECD data.

Such elevated prices have compelled consumers in Korea to reduce their overall shopping, dealing a blow to the revenues of small business owners.

The impact was particularly severe for restaurant owners, as prices of agricultural, livestock, and fishery products surged by 11.7 percent year-on-year in March — the highest increase since April 2021 when the figure stood at 13.2 percent. Prices of agricultural products saw a staggering spike of 20.5 percent.

Worse, the high inflation is expected to continue, as oil prices are forecast to rise amid escalating tensions in the Middle East, which could also increase utility rates.

Against this backdrop, many small business owners express a preference for the Bank of Korea (BOK) to raise the policy rate, which has remained steady at 3.5 percent since January 2023, because the central bank's benchmark interest rate hike is primarily aimed at curbing inflation when it is unacceptably high.

Their wish comes even though they know a higher policy rate will make their loan repayments more difficult.

According to credit rating firm NICE Information Service, the outstanding balance in loans small business owners took out from banks and other financial institutions increased 2.5 percent year-on-year to 1,109.66 trillion won ($804.68 billion) as of December 2023.

In particular, overdue repayments lasting three months or longer surged by 49.7 percent to 27.38 trillion over the cited period.

"Even so, prices are too high and a higher interest rate can be possibly better for our business to survive," one person wrote on the country's largest online community of small business owners last week.

Requesting anonymity, one person who runs a hamburger restaurant suggested that the BOK might need to raise the rate again to curb inflation and stimulate sales for small business owners, even if it means "sacrificing those who are already unable to repay their loans."

However, Ha Joon-kyung, a Hanyang University professor, remained skeptical about the potential effectiveness of a rate hike to invigorate businesses.

"It will worsen the country's growing household debt that already is at a serious level," he said.

According to a recent report by the Institute of International Finance (IIF), Korea's household debt-to-GDP ratio stood at 100.1 percent as of the fourth quarter of 2023, the highest among the 34 countries surveyed.

The professor noted that many small business owners rely on a government-run relief program that lets them delay loan repayments.

The program began in April 2020 to support COVID-19 pandemic-stricken small business owners and other indebted people. Since then, it has been extended repeatedly every six months.