South Korea's Inflation Highest in 30 Months

JAKARTA - South Korea's consumer prices rose sharply again in June. Inflation reached 3.2 percent on an annual basis, the highest in 30 months, driven by a surge in fuel prices and the impact of the Middle East war on supply chains and oil prices.

Yonhap quoted Thursday, July 2, reported that data from the Ministry of Data and Statistics showed that South Korea's consumer prices rose by more than 3 percent for two consecutive months. June's figure was the sharpest increase since December 2023.

The biggest pressure came from industrial products which rose 4.4 percent. Fuel prices jumped 24.7 percent and contributed 0.93 percentage points to overall inflation. That was the sharpest increase since July 2022.

Gasoline prices rose 23.1 percent. Solar jumped higher, namely 33.7 percent. This condition is sensitive for South Korea because the country is highly dependent on energy imports.

The prices of agricultural and fishery products also rose 3.2 percent. Domestic beef rose 7.5 percent, rice rose 11.7 percent, while scallions jumped 37.1 percent. Scallions are an important ingredient in Korean cuisine.

"The area of onion planting has decreased, while its growth is hampered by heat waves, so prices have risen significantly," said Lee Doo-won, Director General of Economic Statistics at the Ministry of Data and Statistics.

Service prices also rose 2.6 percent. Public services rose 1.6 percent, while private services rose 3.4 percent. If off-site dining services are excluded from the calculation, private services rose 3.9 percent.

International airfares jumped 28.2 percent. Meanwhile, core inflation, which excludes volatile food and energy, rose 2.5 percent.

The Ministry of Finance and Economy said the government managed to hold inflation at 3.2 percent through the fuel price limit system that has been in place since March. Without this policy, inflation is estimated to reach 3.6 percent.

The central bank expects price pressures to ease in July. However, inflation is still expected to remain high for some time.

"Consumer prices in June increased higher than May because oil product prices remained high and the increase in agricultural product prices increased," said Deputy Governor of the Bank of Korea Lee Ji-ho at an inflation review meeting.

Lee said downward pressure from lower crude oil prices is likely to be contained by demand pressures due to economic growth. He also assessed that the cost burden of the vulnerable group is still high.

The weakening of the Korean won has not had a direct impact on consumer prices. However, officials from the Ministry of Finance said the influence could emerge in the second half of this year.

The government also assessed that cash assistance for residents affected by the surge in fuel prices would not put a big burden on inflation. The reason is that subsidies are usually used for basic necessities and food, while the government will release reserves to hold prices.

First Deputy Minister of Finance Lee Hyoung-il asked the relevant ministries to keep inflation around 3 percent in the second half of 2026. The South Korean government also prepared discount programs at retail stores in July and August and additional imports of eggs to help dampen prices.