Inflation expected to rebound to above 3% on rising oil, crop prices

By Yi Whan-woo

Consumer inflation in Korea is anticipated to bounce back to the 3-percent range in August and September after decelerating to a 25 month-low of 2.3 percent in July, mainly due to a resurgence in global oil prices, according to analysts, Sunday.

They said global oil prices have gone up again since July, and in turn, are increasing domestic prices of gasoline and diesel, which together account for a significant portion of production costs.

The experts also said supply shortages of agricultural products and other weather-sensitive goods in the wake of heavy rainfall in July will add to inflationary pressure.

Such pressure could build up further as the Chuseok holiday, running from Sept. 28 to Oct. 1 this year, is approaching and a mismatch in the supply and demand of key foodstuff can become severe, they added.

“Consumer prices can rise above 3 percent again in August and September, although they may ease back to the 2 percent range afterward,” said Lee Sang-ho, head of the economic policy team at the Korea Economic Research Institute (KERI).

Lee's projection was similar to the Bank of Korea's (BOK) forecast that the monthly inflation rate will “pick up again from August.”

The BOK estimates that the rate will hover at around 3 percent throughout the remainder of 2023, in line with its annual inflation target of 3.5 percent.

Consumer price growth stood at 2.7 percent in June, 3.3 percent in May, 3.7 percent in April and 4.2 percent in March.

Joo Won, deputy director of Hyundai Research Institute, noted that a change in global oil prices has a ripple effect on Korea usually with a two to three-week lag.

Correspondingly, Joo assessed that spikes in the prices of Dubai, West Texas Intermediate (WTI) and Brent crude have been pushing up prices of products here.

According to oil price information website Opinet, Dubai closed at $86.17 per barrel, Aug. 25, up from $75.21 per barrel, July 3.

During the cited period, the price of WTI advanced to $79.83 from $69.79 per barrel, while the price of Brent climbed to $84.48 from $74.65.

Gas and diesel prices in Korea rose for the seventh consecutive week through last week.

On average, the price of gasoline stood at 1,740.8 won ($1.31) per liter last week and diesel at 1,617.7 won per liter.

“The upward price trend of gasoline and diesel suggests the prices of goods will be affected,” Joo said, pointing out that gasoline and diesel prices combined can push the monthly inflation rate up or down by more than 1 percentage point.

The experts viewed heavy rainfall will continue to take a toll on the prices of agricultural products in the lead-up to the Chuseok holiday, after prices inched up by 1.7 percent month-on-month in July.