Korea's inflation hits above 5% May and to stay so throughout summer

[Photo by Park Hyung-ki]

(Updated with comments)

South Korea’s inflation rate shot above 5 percent for the first time in 14 years in May and could stay strong at least throughout the summer as spike in import cost spilled over to prices across the board from energy and food to service charges.

According to Statistics Korea on Friday, the country’s consumer price index (CPI) jumped 5.4 percent year over year in May, the highest since 5.6 percent in Aug. 2008.

Inflation rate that broke above 3 percent in October has added speed after the outbreak of the Russia-Ukraine war to hit 4.1 percent in March and 4.8 percent in April.

Bank of Korea Governor Rhee Chang-yong predicted inflation could stay above 5 percent for some time while endorsing a back-to-back hike in the base rate to 1.75 percent last month.

The BOK on Friday projected inflation to remain above 5 percent in June and July during a meeting presided over by senior deputy governor Lee Seung-heon.

“It is most important to contain inflation expectations to keep mid-to-long-term consumer price stabilization trend amid continued rise in prices,” Lee said.

Given the fast pickup, some experts see inflation in 6 percent level.

“We are past the days when the government can control prices,” said finance minister Choo Kyung-ho who also projected inflationary numbers in minimum 5 percent range for some time.

Strong prices have become urgent challenge to the new government under President Yoon Suk-yeol in office less than a month. “Typhoon-like economic crisis has arrived at our backyard. This is no time to talk of election triumph,” said Yoon as he was asked about the landslide win by the People Power Party at the local elections on Sunday.

The central bank last month raised annual inflation estimate to 4.5 percent from earlier 3.1 percent forecast, while cutting growth outlook to 2.7 percent from 3.0 percent, raising alarm for stagflation.

The core CPI counting out volatile food and energy factors rose 4.1 percent in May, the highest since 4.2 percent in April 2009.

Prices of industrial goods rose 8.3 percent on year in May and those of agricultural, livestock and fishery products 4.2 percent. Prices of fuel surged 34.8 percent and processed food 7.6 percent on year. Prices of gasoline jumped 27 percent on year and diesel 45.8 percent.

Prices of pork added 20.7 percent, import beef 27.9 percent, grapes 27 percent, cabbage 24 percent, and chicken 16.1 percent. Prices of spring onions, however, fell 48 percent, apples 22.7 percent, and rice 11.2 percent.

Livestock and farm produce prices are strengthening on shortage of imports of animal feed and fertilizers due to the protracted war between Russia and Ukraine, both primary suppliers of grains for global agrifood system.

[Photo by Park Hyung-ki]

Electricity, water, and gas prices rose 9.6 percent on year and services 3.5 percent in May. Prices of individual service – which includes the cost of dining out – increased 5.1 percent, the highest since 5.4 percent in Dec. 2008.

Rent price rose 2.0 percent and public service 0.7 percent.

Living necessaries price index jumped 6.7 percent from a year ago, the highest since 7.1 percent in July 2008.

[ㄏ Maeil Business Newspaper & mk.co.kr, All rights reserved]