Korea on guard against inflation

A customer takes a look at apples at a market in Dongdaemun-gu, central Seoul. The price of apples surged by 71 percent in February on-year. (Yonhap)

Consumer price growth resurged to above 3 percent in February, showing that Korea may be facing stickier-than-expected inflation, data suggested Wednesday.

Consumer prices, a key gauge of inflation, advanced 3.1 percent on-year last month, according to data from Statistics Korea.

Though price growth fell to 2.8 percent in January, dipping into the 2 percent range for the first time in six months, it rebounded to above 3 percent within a month.

The uptick marks the first time in four months that price growth has accelerated on-month, as price growth had shown a steady decline in recent months, inching down from 3.8 percent in October to 3.3 percent in November and to 3.2 percent in December.

In past months, Korea’s inflation rate appeared to be easing out, nearing the target goal of 2 percent, but February’s data suggests that inflation has reaccelerated due to soaring costs for food and energy use, the state-run statistics agency assessed.

The price of agricultural products advanced by 20.9 percent, bringing headline inflation up by 0.8 percentage points. Fruit prices, in particular, increased by 41.2 percent, marking the sharpest increase since 1991.

The rise in international oil prices also increased inflationary pressure. The price of petroleum products fell by 1.5 percent in February, relatively low when compared to the 5 percent drop from the month before.

Yet service prices inched up by 2.5 percent, down from the 2.6 percent increase seen a month before. The price of dining out surged by 3.8 percent but the increase was the smallest seen in 28 months since the growth rate of 3.4 percent recorded in October 2021.

With price growth continuing to surge in major economies around the world despite central banks’ aggressive monetary policy, some are suggesting that inflation has become the “new normal” amid the changing times.

Baek In-seok, a senior researcher at the Korea Capital Market Institute, suggested through a report issued in December, that the retreat from globalization may signal the end of the previous low inflation regime.

"While the steep post-pandemic inflation trend may subside in the short term, driven by central banks’ monetary tightening, returning to the previous low inflation regime may be challenging from a long-term perspective,” the report read.

However, others view that the central banks can still maintain control over inflation, bringing it down to a 2 percent level, by tightening their grip on the base interest rates.

“In the long term, inflation can be controlled through monetary policy,” said Jung Kyu-chul, a researcher of macroeconomic analysis at the Korea Development Institute.

“In the case of Korea, though the headline inflation has been high, the core inflation has remained stable,” he added.

Core inflation, excluding the more volatile food and energy prices, advanced by 2.5 percent on-year, the same as the month before.

"Headline inflation is influenced by temporary factors such as the weather and (major) events. But core inflation, which shows the overall flow of monetary policy, has been brought down, showing that the Bank of Korea's policy has been effective," Jung explained.

The BOK said inflation has been moving as projected.

“Core inflation was maintained at the previous month’s level. Headline inflation accelerated due to the price hikes in agricultural products. This is in line with the projection made last month,” said BOK Deputy Gov. Kim Woong at a meeting on Wednesday.

“If not for the hike in international oil prices, headline inflation will calm down with a slowdown in domestic demand,” he said. “But considering that the price of daily necessities could be high for a while, the flow (of disinflation) could be bumpy, rather than smooth.”

Meanwhile, the government has vowed full efforts to tame inflation.

"The government takes the recent inflation situation seriously. It will put in all efforts to bring down inflation to a 2 percent level," Finance Minister Choi Sang-mok said at a separate meeting.