South Korea’s Inflation Returns to the 3% Range as SKT’s Half-Price Effect Fades

South Korea’s inflation rate moved back above 3% last month after the fading impact of a temporary SK Telecom discount pushed mobile-phone charges sharply higher in annual comparisons.

Consumer prices rose 3.1% from a year earlier, according to figures released by the National Data Agency. Inflation had reached 3.1% in May and 3.2% in June, then eased to 2.8% in July before returning to the 3% range two months later.

Mobile-phone charges rose 26.7% last month. A year earlier, SK Telecom had cut communication fees by 50% for all subscribers after a hacking incident, causing mobile-phone prices to fall 21%. Lee Doo-won, an official at the National Data Agency, said overall inflation would have been around 2.5% without the base effect from the discount.

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When the base effect from the mobile-phone fee discount is removed, overall inflation is around 2.5%.

The sharp increase in phone charges lifted public-service inflation from 1.4% in July to 6.5% last month. That marked the largest increase since August 2001, when public-service prices rose 7.2%, and added 0.72 percentage points to the overall inflation rate.

Oil prices rose 14.2% from a year earlier and added 0.54 percentage points to inflation, although the increase slowed from 15.5% in July under the oil price ceiling scheme. The government estimated inflation would have reached 3.6% without the measure. Agricultural, livestock and fishery prices fell 2.6% as supply increased and discount programs were introduced, but heat and stronger demand during the Chuseok holiday could push prices higher. Bank of Korea Deputy Governor Lee Ji-ho said September inflation would be lower than August as the base effect disappears, while underlying pressure would continue, particularly in core items.

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Due to the disappearance of the base effect, the September inflation rate will be lower than in August, but the underlying upward trend will continue, centered on core items.