Korea’s inflation inches up towards 6% on record jump in utility charges

South Korea’s inflation inched up closer to an annualized pace of 6 percent in October due to the biggest-ever spike in public utility charges to sustain state fuel suppliers grappling with yawning deficit and losses from jump in energy cost.

According to Statistics Korea on Tuesday, the country’s consumer price index (CPI) rose 5.7 percent year over year in October after slighting easing to 5.6 percent in September.

Inflation has softened in August to 5.7 percent from 24-year-highs of 6.3 percent in July and 6.0 percent in June.

The core CPI that excludes volatile food and energy factors rose 4.8 percent in October, also stronger from 4.5 percent gain in September, due to spillover of prices across the board from stronger fuel prices.

Prices of industrial goods rose 6.3 percent in October led by a 10.7 percent jump in petroleum products and 9.5 percent in processed foods. Gains in petroleum products nevertheless have slowed from 39.6 percent in June, 35.1 percent in July, 19.7 percent in August, and 16.6 percent in September. Prices of diesel gained 23.1 percent in October and lamp oil 64.8 percent while those of gasoline fell 2 percent.

Industrial goods’ contribution to entire CPI fell to 2.20 percentage points in October from 3.24 percentage points in June and 2.32 percentage points in September.

Prices of agricultural, livestock, and fishery products rose 5.2 percent in October, easing from a 6.2 percent growth in September. Prices of agricultural goods gained 7.3 percent, down from the previous month’s gain of 8.7 percent. Prices of vegetables jumped 21.6 percent, livestock products 1.8 percent, and fisheries 6.5 percent, gaining from a 4.5 percent rise in the previous month.

Prices of cabbage soared 72.3 percent, radish 118.1 percent, tomato 2.5 percent, pork 3.3 percent, and spring onions 24 percent.

[Photo by Kim Ho-young]

Electricity, water, and gas prices soared 23.1 percent in the biggest-ever annual rise since the agency began compiling related data in January 2010. The prices soared due to public utility fee hike. Their contribution to the entire CPI rose to 0.77 percentage point in October from 0.48 percentage point in September.

Prices of individual services - which includes the cost of dining out - rose 6.4 percent in October, unchanged from the previous month to continue to mark the steepest gain since 6.6 percent in April 1998. The price of dining out was up 8.9 percent and individual service excluding dining out 4.6 percent.

Living necessaries price index jumped 6.5 percent in October - unchanged from the previous month’s on-month gain.

The Bank of Korea’s monetary policy board meeting on Nov. 24 for the last time this year could have a hard time in deciding the final rate for the year due to untamed inflation. Since its decision of raising the base rate by 50 basis points in October had not ben unanimous, it could take account of the tone of the U.S. Federal Reserve chair after the rate-setting meeting this week for cue in the direction of U.S. tightening campaign to possibly moderate the pace in rate increase in light of the liquidity woes of Korean Inc. from battered debt market, slump in corporate and consumer spending from rapid rises in interest rates and slowing economy from widening in worst-ever trade deficit.

By Lee Eun-joo