South Korea’s Inflation Rate Jumps to Nearly 14-year High

A couple wearing masks to protect against contracting the COVID-19 walk along a street in Seoul, South Korea, on April 3, 2020. Heo Ran/Reuters

The inflation rate in South Korea jumped to 5.4 percent in May from the previous year, hitting a near 14-year high amid soaring crude oil and commodity prices triggered by the Russia-Ukraine war.

Statistics Korea reported Friday that consumer prices accelerated from an on-year increase of 4.8 percent in April, marking the fastest annual growth since August 2008, when consumer prices rose 5.6 percent.

Consumer prices also exceeded the central bank’s inflation target of 2 percent for the 14^th consecutive month, Yonhap news agency reported.

“In May, prices of petroleum products and processed foods, and personal service prices extended their high growth. The price growth of farm products also picked up,” Statistics Korea senior official Eo Woon-sun said.

Petroleum prices increased 34.8 percent on-year in May, while prices of agricultural, livestock and fisheries products jumped 4.2 percent.

The Bank of Korea (BOK) increased the key interest rate by a quarter percentage point to 1.75 percent last month to reduce household debt.

The BOK’s move followed the U.S. Federal Reserve’s decision to raise its key interest rate by a half percentage point to a range of between 0.75 to 1 percent. The Fed hinted at future rate hikes as part of monetary policy tightening to control inflation.

The BOK’s governor, Rhee Chang-yong, stated on May 26 that inflation now takes precedence over economic growth and that the decision to raise interest rates was made “unanimously.”

“At this point, our expectation is that inflation could have more of a negative ripple effect than growth. As such, we need to respond in a preemptive manner,” Rhee told reporters.

“If the central bank loses the chance for policy reaction, then it could increase expectations of inflation and end up raising prices, eventually lowering real incomes and deepening financial stability,” he added. “As a result, it could have more far-reaching damage to at-risk people in the mid-and long-term period.”

Both the Bank of Korea and Finance Minister Choo Kyung-ho projected that the inflation rate would stay above 5 percent in June and July due to rising oil and grain costs.

“Consumer prices and pressure on people’s livelihood increased as supply disruptions caused by the Russia-Ukraine war and some major agricultural producing countries’ export restrictions drove up the prices of global energy and food,” according to a summary of Choo’s remarks at a meeting of Korea’s finance ministry  May 30.

The government drew a total of 3.1 trillion won ($2.5 billion) measures to stabilize food prices and reduce living expenses. Residents will get fuel subsidies tied to diesel prices on June 1 to ease the load on the transportation and logistics industries.