The rise in international oil prices and the strength of the dollar against the won pushed the consumer price index to above 2% last month. This surpasses the Bank of Korea's inflation stability target of 2% and marks the highest level since August of last year.
The surge in oil prices led the increase in prices, while vegetable prices also rose significantly compared to the previous month. Prices for electricity, gas, and water also showed a consistent upward trend. Health insurance premiums and increased travel demand resulted in rising costs for both overseas and domestic group travel and condominium rentals.
The government projected that unstable price trends would persist due to the rise in exchange rates and international oil prices during the first half of this year. However, it anticipates that the rate of price increase will slow down in the second half.
According to the 'January Consumer Price Trends' released by Statistics Korea on the 5th, the consumer price index for last month was 115.71 (2020=100), reflecting a 2.2% increase compared to the same month last year.
By item, prices of petroleum products, including gasoline (9.2%) and diesel (5.7%), rose 7.3% compared to a year ago, driving the overall price increase. The contribution was 0.27 percentage points (p). The price of industrial products, including processed foods, rose 2.2%, affecting the overall price by 0.74 percentage points. This is the second highest level after personal services (1.24 points).
Lee Doo-won, director of economic trends statistics at Statistics Korea, noted, 'The price of petroleum products expanded significantly compared to the previous month due to rising international oil prices and exchange rates.' The prices of processed foods, affected by the exchange rate, increased by 2.7%, marking the largest rise since January of last year (3.2%) and contributing 0.23 percentage points to the overall price increase.
Prices for agricultural, livestock, and fishery products rose 1.9%. Vegetable prices increased by 4.4%, livestock products by 3.7%, and fishery products by 2.6%. Notably, napa cabbage surged by 66.8%, reaching the highest increase in two years and three months since October 2022 (72.5%). The reduction in supply from production areas due to adverse weather impacted this increase. Radishes also rose by 79.5%, resulting in a significant increase.
Kim (seaweed) rose by 35.4%, marking the largest increase since November 1987 (42%) in 37 years and two months. This was influenced by increased demand and past poor harvests. Carrots also increased by 76.4%, marking the largest rise since February 2017 (103.7%) in seven years and 11 months. However, the prices of green onions (-32.0%), sweet potatoes (-23.2%), and bananas (-13.8%) saw substantial declines.
The government plans to mitigate supply and demand instability by expanding imports through measures such as applying assigned tariffs to napa cabbage and radishes and increasing contract farming for spring napa cabbage and radishes. Furthermore, to prepare for potential temporary supply imbalances due to fluctuations in weather conditions, the government will consistently supply its reserves and private storage to the market.
Personal services saw increases in prices for dining out (2.9%) and excluding dining out (3.5%). Prices for dining out rose, with sashimi increasing by 5.0% and cafeteria meal costs rising by 3.8%. Personal services excluding dining out recorded their highest rate of increase in 13 months due to rising costs of health insurance premiums (14.7% for insurance service fees), travel fees, and condominium fees.
The government maintained its forecast that, in terms of future price trends, there would be significant uncertainty due to international oil prices and high exchange rates, but inflation would remain below 2%. The January inflation rate of 2.2% exceeds the Bank of Korea's inflation stability target of 2.0%, but the government explained that it is not a particularly high level compared to inflation rates in December from the United States (2.9%), United Kingdom (3.5%), Japan (3.6%), the European Union (2.7%), and the OECD (4.7%).
Hwang Gyeong-im, head of the price policy department at the Ministry of Economy and Finance, said, 'Although there are upward pressures on prices from rising exchange rates and international oil prices at the beginning of the year, we expect to see a trend of slowing down as we go into the second half.' She added, 'Forecasting agencies also maintain the view that international oil prices will slow down this year compared to last year, so it is not time to change the current annual consumer price estimate.' Previously, the government projected an annual consumer price increase rate of 1.8%.
However, the government recognizes that the inflation rate may exceed expectations due to the effects of high exchange rates and high oil prices, and it is committed to stable price management. A Ministry of Economy and Finance official stated, 'Given the volatility of international oil prices and uncertainties like unusual weather, the government plans to remain vigilant and make every effort to stabilize prices.'