Korea faces prolonged inflation as fresh food prices soar

Packed strawberries are displayed at a supermarket in Seoul, Sunday. Yonhap

Surging prices of fresh food are posing challenges to Korea’s push to lower consumer inflation to the 2 percent target goal in the first half of 2024, according to experts, Sunday.

The experts said unstable consumer prices are likely to delay the Bank of Korea (BOK) from lowering the benchmark interest rate for economic rebound after the rate was hiked to a more than 14-year high of 3.5 percent.

“High prices of apple and other fruits are likely to push consumer inflation upward again in March, and stand in the government’s path to bring down consumer inflation,” said Myongji University economics professor Woo Seok-jin.

The professor referred to overall consumer inflation that gained 3.1 percent year-on-year in February, a rebound after it remained above the 3 percent from August and December 2023 and eased to 2.8 percent in January.

The rebound came as fresh food prices rose steeply due to heavy rainfall and other adverse weather conditions, resulting in a mismatch between supply and demand.

Prices of 55 major fresh food items rose 20 percent year-on-year in February, marking the steepest increase since September 2020, when those prices rose 20.2 percent.

In particular, the price of apples went up a whopping 71 percent, putting Korea at the top in terms of apple prices by countries listed out by Numbeo, a database platform on the world’s cost of living.

The professor said core inflation possibly can go up after it remained unchanged at 2.5 percent year-on-year in February.

Core inflation, which excludes volatile food and energy prices, is a measurement of long-term trends of inflation overall.

Joo Won, director of the Hyundai Research Institute, said the BOK’s possible rate can be postponed as “A path to 2 percent inflation is increasingly uncertain.”

The BOK has been keeping the base rate steady at 3.5 percent since January 2023, and it is drawing attention over when it will begin any rate cuts.

The timing of a rate cut is especially drawing attention as the U.S. Federal Reserve hinted at cutting its respective rate in June.

The U.S. rate currently ranges from 5.25 percent to 5.5 percent, with the interest gap with Korea’s 3.5 percent rate remaining at a record high.

“The possibly that the U.S. rate cut will pave the way for the BOK to lower the rate, but consumer inflation can disrupt such efforts,” Joo said.