South Korea's Inflation Hits 3.1% in May, Driven by Oil Prices and Holiday Demand

South Korea's consumer prices surged 3.1% year-on-year in May, marking the highest inflation rate in 26 months. This sharp increase is attributed to a combination of factors, including elevated oil prices stemming from geopolitical conflicts and increased demand during the May holidays. The Bank of Korea now anticipates that inflation will persist in the 3% range for the foreseeable future, intensifying the government's focus on managing consumer prices.

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The cost-push shock from oil prices is gradually spreading to other sectors, and we expect the inflation rate to remain in the 3% range for the time being.

The latest data from Statistics Korea reveals a significant jump from April's 2.6% inflation rate, with May's figure matching the 3.1% recorded in March. The surge in oil prices was a primary driver, contributing 0.92 percentage points to the overall inflation. This represents the largest year-on-year increase in oil prices since July 2022, when it stood at 33.5%. Both diesel and gasoline prices saw substantial hikes. The Ministry of Economy and Finance noted that government interventions, such as price caps on petroleum products and fuel tax reductions, effectively lowered the overall inflation rate by 0.6 percentage points; without these measures, May's inflation would have reached 3.7%.

Beyond fuel, other costs linked to oil prices also climbed. International airfares rose by 33.5% and overseas group tour packages by 26.3%. The "services excluding dining out" category, which includes hotel accommodation and car rentals influenced by the two May holidays, increased by 4.4%, adding 0.9 percentage points to the overall inflation.

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Economic growth and improved inequality are impossible without price stability.

While food prices have shown relative stability, concerns linger. Agricultural, livestock, and fishery products saw a 2.2% increase year-on-year. However, this figure masks a 0.8% decrease in agricultural products, while livestock products (up 5.8%) and fishery products (up 5.0%) experienced significant price hikes due to factors like animal diseases and rising import costs. The Bank of Korea, closely monitoring these trends, stated that the "cost-push shock from oil prices is gradually spreading to other sectors," leading to the expectation of sustained 3% inflation. President Lee Jae-myung emphasized that economic growth and reduced inequality are impossible without price stability, urging swift countermeasures.

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We will prioritize "market basket" prices and make every effort to provide discounts, lower supply costs, and increase supply.