Has Inflation Passed Its Peak? Focus on Price Trends After Chuseok

US Inflation Rate Slows... Airfare and Used Car Prices Decline
South Korea's Government Closely Monitors Price Trends After Chuseok Holiday

[Asia Economy Reporter Kim Eun-byul] As the global economy recovers after COVID-19, concerns about inflation have increased due to ongoing supply disruptions. However, with the inflation rate in the U.S. slowing somewhat last month, there is an assessment that the peak of inflation has passed. Nonetheless, since high price levels are expected to continue for the time being, the Federal Reserve (Fed), the U.S. central bank, is likely to proceed with tapering (reducing asset purchases) within this year as planned. In South Korea, the consumer price inflation rate has remained in the 2% range for five consecutive months, and attention is focused on whether the inflation rate will ease after the Chuseok holiday.

According to Capital Economics and others on the 20th, although the U.S. consumer price inflation rate remains very high, prices of used cars and trucks, which had driven inflation, are now declining. This suggests that the inflation rate may slow down compared to before. Capital Economics forecasted, "The decrease in demand due to the COVID-19 Delta variant and others will also suppress the inflation trend."

The U.S. Consumer Price Index (CPI) inflation rate for August rose 5.3% year-on-year. This was slightly below market expectations and lower than the 5.4% increase recorded in June and July, which were the largest increases since August 2008. The month-on-month increase was 0.3%, continuing a decline since June's 0.9%. Core consumer price inflation also fell to 4.0% year-on-year, down from 4.3% in July.

The inflation rate for used cars and trucks dropped 1.5% month-on-month, turning negative. Additionally, transportation service prices, including airfare and accommodation, fell 2.3% compared to the previous month. JP Morgan explained, "The drop in prices for airfare, hotels, and car rentals suggests that the spread of the Delta variant is acting as a factor pulling prices down."

However, Morgan Stanley assessed that it may take longer than expected for prices to fall. This is because rent increases continue globally, fueled by the recent surge in money supply. Accordingly, the Fed's planned tapering is expected to be implemented within this year.

While the inflation peak in the U.S. appears to have passed, prices are still expected to remain high, and attention is focused on whether South Korea's inflation trend will also ease.

According to the Consumer Price Trends by Statistics Korea, the index stood at 108.29 (2015=100), marking a 2.6% increase compared to the previous year. The inflation rate reached the highest point of the year for two consecutive months, driven by rising prices of agricultural, livestock, and fishery products such as meat and eggs, as well as petroleum products. Citizens are shopping at a large supermarket in Seoul. Photo by Mun Ho-nam munonam@

According to Statistics Korea, the Consumer Price Index in August rose 2.6% year-on-year, marking five consecutive months of inflation in the 2% range. The annual inflation rate is also expected to exceed 2% for the first time in nine years. The Bank of Korea revised its annual consumer price inflation forecast upward by 0.3 percentage points from 1.8% to 2.1% in its updated economic outlook released at the end of last month.

The government initially expected the inflation surge to be temporary, but as it has not been contained, it is closely monitoring the situation and managing prices of items that significantly affect daily life. With food prices rising ahead of Chuseok, the government plans to observe price trends after the holiday and respond accordingly. On the 17th, Lee Eok-won, First Vice Minister of Strategy and Finance, said at the Price-Related Vice Ministers' Meeting held at the Government Seoul Office, "Considering the improvement in supply conditions such as decreased demand and recovery in production volume after the holiday, further price declines are expected after Chuseok."