Protracted Iran war expected to lift consumer prices further

Imported bananas are displayed inside a supermarket in Seoul, March 5. Bananas in Korea are imported mostly from the Philippines, Vietnam and Ecuador. Yonhap

United States President Donald Trump’s speech on Wednesday (local time), in which he said Washington will continue to attack Iran over the next two to three weeks, is stoking fears that consumer prices in Korea will continue to climb as the chokehold in global supplies of crude oil raises logistics costs.

According to the Ministry of Data and Statistics Thursday, Korea's overall consumer price index in March was 118.80, up 2.2 percent year-on-year.

The increase was not sharper than in the months prior to the Middle East conflict, as the government’s policy measures on food products and fuel retail prices helped offset the drastic rise in crude oil prices.

Four major oil imports all jumped by at least 8 percent from a year earlier. Diesel spiked 17 percent, while kerosene hiked 10.5 percent, petroleum 9.9 percent and gasoline 8 percent. Despite the government’s introduction of a fuel retail price cap, petroleum products pushed up overall consumer prices by 0.39 percentage points.

This has canceled out the downtrend in food costs. Agricultural and livestock prices last month fell 0.6 percent from the previous year, with agricultural products alone dropping 5.6 percent.

In particular, the price of sugar and flour dropped 3.1 percent and 2.3 percent year-on-year, respectively, after the government fined companies involved in colluded price fixing for those products.

The general increase in food costs is raising concerns that the full impact of the Iran conflict has yet to be reflected in consumer prices. The government expects the impact to begin materializing this month, as rising oil prices and logistics costs are expected to affect consumer prices on a time lag.

"Rising oil prices typically affect airfares within one to two months and then feed into the prices of imported agricultural and livestock products," a ministry official said. “If high oil prices persist, they are also expected to impact the cost of dining out, processed foods and industrial goods.”

Surging oil prices have already begun to affect airfares, with major national carriers such as Korean Air and Asiana Airlines raising fuel surcharges by 2.7 to 3.5 times starting this month. Combined with the weakened Korean won, passenger fares have jumped by as much as 250 percent from the previous month.