Prices Soar at Fastest Rate in 9 Years and 1 Month... 2nd Quarter Expected to Exceed 2%

Statistics Korea Announces May Consumer Price Trends... International Oil Prices Hit Highest Since October 2018
Government: "Temporary Rise Due to Base Effect, Stabilization in Second Half"

[Asia Economy Reporters Hyunwoo Lee and Sunhee Son (Sejong)] Last month, consumer prices rose by 2.6% compared to a year earlier, marking the largest increase in 9 years and 1 month. This was due to poor crop yields and the impact of avian influenza (AI), which kept agricultural, livestock, and fishery product prices from stabilizing, coupled with soaring international oil prices that caused industrial products and service prices to rise as well. The government diagnosed this as a 'temporary surge' but decided to expand imports of certain items to stabilize prices.

According to the 'May Consumer Price Trends' released by Statistics Korea on the 2nd, the consumer price index last month was 107.46 (2015=100), up 2.6% from the same month last year. This was largely influenced by the base effect from last May's negative consumer price growth and increased demand for goods due to economic recovery. Since the inflation rate exceeded 2% in April as well, the overall inflation rate for the second quarter is likely to significantly surpass the government's annual inflation management target of 2%.

The price increase was led by agricultural, livestock, and fishery products and petroleum products. Petroleum products showed the highest increase rate of 23.3% since August 2008. In particular, international oil prices recently maintained a production cut trend, reaching a two-year high.

According to foreign media such as CNBC on the 1st (local time), the price of West Texas Intermediate (WTI) crude oil on the New York Mercantile Exchange (NYMEX) closed at $67.72 per barrel, up 2.1% from the previous session. Brent crude oil on the London International Futures Exchange (ICE) closed at $70.25 per barrel, up 1.3%. Both WTI and Brent crude prices marked their highest levels since October 2018. Brent crude even rose to $71.32 during the session.

Consumer prices showed the largest increase in 9 years and 1 month, continuing a rise in the 2% range for two consecutive months. The photo shows citizens shopping at a large supermarket in downtown Seoul on the day./Photo by Kim Hyun-min kimhyun81@

The government judged the inflation rate announced that day as a 'temporary phenomenon.' Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, stated, "The base effects and temporary supply shocks that have driven the recent price increases will gradually ease as we move into the second half of the year. However, we plan to respond with full force alongside related ministries to prepare for the possibility of inflation risks materializing with a vigilant attitude and to block excessive inflation expectations."