The consumer price index for February recorded a 2.0% increase, showing stabilization. The drop in agricultural prices compared to a year ago has helped suppress the overall rise in consumer prices. However, the high exchange rate continues, preventing a decrease in processed food and petroleum prices. The government plans to keep a close eye on exchange rate trends and is committed to stabilizing prices.
According to the Consumer Price Trends for February released by the Statistical Office on March 6, the consumer price index for February rose by 2.0%, down 0.2 percentage points from January (2.2%). The core inflation rate, which reflects the underlying trend excluding agricultural and petroleum products, slowed to 1.8%.
◇ Stabilization of vegetable and fruit price rises… hard to feel
The drop in agricultural prices last month helped suppress overall inflation. Agricultural prices decreased by 1.2% compared to February last year. Following a 0.6% increase in January, agricultural prices turned downward last month.
Specifically, the price of vegetables reduced its rise from 4.4% last month to 1.3% this month. The price of fruits decreased by 5.3% year-over-year, helping to curb overall price rises. Prices for persimmons, melons, and peaches fell by more than 25% compared to a year ago, while tomatoes and watermelons dropped by 19.5% and 18.4%, respectively. The price of apples, once dubbed precious apples when prices surged early last year, also fell by 2.3%.
The stabilization of agricultural prices is seen as a result of the government's extensive measures to control prices. Since the beginning of the year, the government has spent 11.6 trillion won on discount support for agricultural and livestock products and food vouchers, aiming to lower household grocery prices. Additionally, various tax benefits such as reduced tariffs and exemptions from import value-added tax have been introduced to make cheaper imported fruits like bananas and cherries available in the market.
As a result, despite an increase in the won-dollar exchange rate compared to last year, the prices of imported fruits showed a downward trend. The price of cherries decreased by 18% compared to last year, while prices for kiwis (-13.1%), bananas (-11.4%), and pineapples (-10.7%) fell by more than 10%. The price of mangoes fell by 0.1%, maintaining a similar price range as last year.
However, a representative from the Statistical Office noted, "Fruit and vegetable prices have a base effect compared to last year," adding that "the index level itself is not low, so the perceived inflation felt by the public is likely to be quite high." The fresh food index stands at 113.67, the lowest in 35 months, but overall price levels remain high. Indices for fresh fish (115.48), fresh vegetables (133.85), and fresh fruits (155.15) are still above the base year of 2020 (100).
Meanwhile, the prices of personal services also saw a reduced increase compared to the same month last year. Personal service prices rose by 3.2% in January but dropped to 3% in February. The end of the Lunar New Year holiday significantly impacted the decline in travel-related product prices.
◇ Processed food and petroleum prices sensitive to exchange rates have risen sharply… 'exchange rates' are a future inflation variable
While the rate of inflation has decreased, the high won-dollar exchange rate has prevented price increases from subsiding for some items. The exchange rate, which hovered in the 1300 won range against the dollar in November last year, rose to the 1400 won range after the state of emergency in December. By January, it jumped to the upper 1400 won range.
Prices of processed foods have shown an upward trend due to price increases implemented by the food industry since the second half of last year. The food industry has been raising prices in response to increased costs for imported raw materials due to abnormal weather, reduced cultivation areas, rising labor costs, and a high exchange rate.
The inflation rate for processed foods stands at 2.9%, contributing 0.24 percentage points to the overall inflation rate. This marks an increase from the previous month's rate (2.7%) and contribution (0.23 percentage points). Specific items like shredded squid (29.1%), biscuits (8.4%), coffee (7.9%), juice (7.6%), and bread (4.9%) have seen rising prices.
A government official stated, "We are applying reduced tariffs to 14 types of food raw materials," and emphasized that they are consistently communicating with the industry through the Ministry of Agriculture, Food and Rural Affairs, requesting cooperation in stabilizing prices.
Prices for energy resources sensitive to exchange rates, such as oil and natural gas, have also been on the rise. The price of petroleum increased by 6.3% in February following a rise of 7.3% in January. Although international oil prices dropped from $80.9 a year ago to $78.2 last month, the exchange rate has risen from 1331 won to 1447 won. Prices for electricity, gas, and water, which are influenced by energy prices, have also increased by 3.1%.
Seong Byeong-hoon, a professor at Ewha Womans University, stated, "With international oil prices stabilizing, the strong dollar effect is being offset, and prices are trend-wise stabilizing," adding that "it is time to shift the focus of monetary policy from price stability to financial stability and responses to economic recession."
However, the government is finding it difficult to predict this year's price trends due to rapidly changing exchange rates. A Ministry of Finance official noted, "Due to global economic uncertainties, the exchange rate is continuously volatile, making it hard to say how the exchange rate will behave in the future," adding, "We monitor exchange rates daily, and our price forecasts change daily as well."
On the 27th of last month, Jo Gang-cheol, Deputy Administrator of the Price Trends Team at the Bank of Korea, and Wi Seung-hyun, a researcher, indicated in a report that "due to the surge in exchange rates since the end of last year, there is a possibility that prices will rise in the second half of the year," explaining that "as corporations that had postponed price increases join in if the rise in exchange rates prolongs, the price pass-through effect of exchange rates will expand."