Korean inflation slows while agricultural product prices remain volatile

[Photo by Yonhap]

Inflation in South Korea slowed for the first time in four months, but uncertainty remains as international oil prices remain volatile and poor fruit harvests could lead to higher prices.

According to Statistics Korea on Tuesday, the consumer price index (CPI) rose 3.3 percent on year in November, 0.5 percentage points lower than the 3.8 percent increase in October 2023. Inflation has slowed largely due to a faster drop in oil prices as well as a slower rise in the price of agricultural and fisheries products. “The decline in petroleum prices widened as international oil prices fell, and the increase in agricultural products, seafood, durable goods, and textile products slowed down, resulting in a 0.5 percentage point decline [in inflation from October],” Statistics Korea senior official Kim Bo-kyung said.

Oil prices were 5.1 percent lower than a year earlier thanks to stabilizing international oil prices and, as a result, lowered overall inflation by 0.25 percentage points.

“The geopolitical unrest in the Middle East, productions cuts by OPEC Plus, and the demand for crude oil from the global economy have the greatest impact (on oil prices),” Jang Bo-hyun, head of the inflation policy division at the Ministry of Economy and Finance, said. “International oil prices have become more volatile, and they react to every piece of news.”

However, concerns remain over the prices of agricultural products, including those of fruits and vegetables. Agricultural product prices rose 13.6 percent in November 2023, the largest increase in two years and six months, which pushed overall inflation up by 0.57 percentage points. In particular, the fresh food index gained 12.7 percent, with fresh fruit prices surging as much as 24.6 percent. Apple prices are 55.5 percent higher than a year ago, and mandarin oranges and grapes also saw their prices climb 16.7 percent and 16.4 percent respectively. Analysts note that the significant increase in apple prices has driven up demand for other fruits as a substitute, leading to an overall increase in fruit prices. Many of these fruits are harvested once a year, so the prices of fruits that are already harvested are unlikely to fall moving forward, according to the government.

Vegetable prices also rose 9.4 percent from a year ago. The prices of cucumbers were up 39.9 percent, green onions 39.3 percent, and tomatoes 31.6 percent. Prices of spinach, on the other hand, fell 39 percent, cabbage 38.6 percent, and lettuce 24.2 percent as the impact of this summer’s heavy rains and typhoons began to ease.

Core CPI excluding volatile food and energy factors was up 3.3 percent from a year earlier. “Core CPI is moving in a similar direction without a big month-to-month difference,” Jang said. “(Overall inflation) is on a higher level than the one announced in the economic policy direction for the second half of 2023.”

The Bank of Korea predicted that inflation would continue to slow, but not at a fast pace. “Inflation is likely to continue to slow, but at a moderate pace,” the central bank said at a meeting to review the inflation situation. “Many uncertainties remain regarding the inflation outlook, including the trend of international oil prices, domestic and international business conditions, and the impact of accumulated cost pressures.”

The government plans to continue its tariff rate quotas (TRQs) and discounts to ease the burden of people’s shopping expenses. “We will strengthen price stabilization support for some agricultural, livestock, and marine products that are still expensive, such as chicken and leeks, to induce the rapid importation of products eligible for TRQs implemented in November,” Choo Kyung-ho, deputy prime minister and minister of economy and finance, said at a contingency meeting of economic and price-related ministers. “We will also use reserve funds to extend discounts on agricultural and seafood products and the use of Onnuri gift certificates, which were originally scheduled to end in early to mid-December, until the end of the year.”