April Consumer Prices Up 3.7%... Back to 3% Range After 14 Months (Comprehensive)

Impact of 16.4% Decline in Petroleum Product Prices

Last month, the consumer price inflation rate reached 3.7%, entering the 3% range for the first time in 14 months. This was influenced by a significant drop in petroleum prices for the first time in 35 months.

According to the 'April 2023 Consumer Price Trends' released by Statistics Korea on the 2nd, the consumer price inflation rate last month rose 3.7% compared to the same month last year. This is 0.5 percentage points lower than March (4.2%). The consumer price inflation rate falling into the 3% range is the first time in 1 year and 2 months since February last year (3.7%). The high inflation level that surged to 6.3% in July last year is gradually slowing down.

Petroleum prices fell 16.4% compared to the same month last year, pulling down the overall inflation rate. Petroleum prices dropped by the largest margin in 35 months since a 18.7% decline in May 2020. Additionally, agricultural, livestock, and fishery products rose by 1.0%, and industrial products by 2.0%, contributing to the slowdown in inflation. Kim Bo-kyung, Economic Statistics Review Officer at Statistics Korea, explained the decline in petroleum prices as “an effect of the base period when petroleum prices rose sharply in April last year.”

The core inflation rate (excluding agricultural products and petroleum), which shows the underlying trend of inflation, remains high. The Korean-style core inflation index, compiled from 401 items, rose 4.6% year-on-year, showing only a 0.2 percentage point slowdown from the previous month (4.8%). The OECD-style core inflation index (excluding food and energy), compiled from 309 items, remained at the same level as February (4%) and March (4%). The living cost index rose 3.7% year-on-year. The living cost index is compiled from 144 items that consumers frequently purchase and spend a high proportion on, making it close to perceived inflation. The fresh food index rose 3.1% compared to the same month last year.

Kim Woong, Deputy Governor of the Bank of Korea, stated at the 'Price Situation Review Meeting' on the 2nd, "The consumer price inflation rate is expected to show a clear slowing trend until mid-year, and the core inflation rate is expected to continue a slower deceleration compared to consumer prices for the time being." Kim Bo-kyung, Economic Trend Statistics Review Officer at Statistics Korea, also explained, “Looking at the core inflation rate excluding indices with large seasonal fluctuations such as agricultural products and petroleum, no decline has yet appeared, and the slowdown trend is being maintained.”

Service prices rose 4.0% year-on-year, 0.2 percentage points higher than last month (3.8%). Rent increased by 0.8%, public services by 1.0%, and personal services by 6.1%. Dining-out prices rose 7.6% year-on-year, with the increase accelerating compared to the previous month (7.4%). Statistics Korea explained that for personal services, cost factors such as labor and material costs were gradually reflected, causing a slight rise. By item type, goods rose 3.4% year-on-year, with agricultural, livestock, and fishery products up 1.0%, and industrial products up 2.0%. In particular, electricity, gas, and water prices rose 23.7%.

Statistics Korea cited international oil prices and public utility fee hikes as future risk factors. The government plans to raise electricity rates soon. Kim, the review officer, said, "Considering the base effect of last year's high inflation, prices are expected to stabilize in the second half of this year," but added, "However, there are many uncertainties such as the timing of electricity and gas rate hikes, international oil price increases, and exchange rates." Statistics Korea also pointed out the dollar-won exchange rate, which affects the prices of imported goods, as a risk factor.