South Korea’s inflation accelerates on higher oil price impact

[SEOUL] South Korea’s consumer inflation picked up as surging energy costs began to feed more forcefully into the domestic economy, with price gains matching the fastest pace since July 2024.

Consumer prices climbed 2.6 per cent in April from a year earlier, accelerating from a 2.2 per cent pace in March, the Ministry of Data and Statistics said on Wednesday (May 6). The result was in line with the 2.6 per cent median estimate in a Bloomberg survey.

Core inflation, which strips out volatile food and energy, gained 2.2 per cent, indicating that underlying price pressures remained contained even as external cost shocks build.

The stronger reading highlights the growing conflicts in the Middle East. Import prices jumped about 16 per cent in March, the fastest pace in nearly three decades, underscoring how persistently higher oil prices and currency weakness are passing through to domestic prices.

Oil has soared more than a quarter over the past two weeks amid concerns that the Strait of Hormuz may remain effectively closed as negotiations between the US and Iran appear to make little progress. The waterway was the conduit for about a fifth of the world’s crude before the Mideast conflict.

Against that backdrop, inflation expectations have strengthened. The index tracking price-level expectations for the next one-year climbed to the highest since early 2023, while expected inflation over the next year also moved higher, pointing to lingering concern among households.

In April, transportation surged 9.7 per cent from a year earlier, while prices for food and lodging gained 2.6 per cent. Housing and utilities costs picked up 1.7 per cent, and household goods and services climbed 1.9 per cent.

Broader consumer-price increases stayed modest, with communication costs rising 0.6 per cent and food and non-alcoholic beverage gaining 0.3 per cent.

Wednesday’s data add to a complex economic picture that may put more pressure on the Bank of Korea to consider shifting to a tightening bias. Strong semiconductor exports have continued to support growth, helping drive a 1.7 per cent expansion in first-quarter gross domestic product, and newly-appointed Governor Shin Hyun Song has warned that higher oil prices and a weaker won are likely to push inflation higher.

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Still, Shin also warned that higher prices could weigh on growth at a time when domestic demand is already somewhat fragile.

Policymakers have kept the benchmark rate at 2.5 per cent since July last year, maintaining a pause as they balance inflation risks against concerns over growth and financial stability. At the latest meeting in April, the central bank emphasised a data-dependent approach.

With cost pressures building and expectations rising, the risk is that inflation proves more persistent, potentially limiting the central bank’s ability to support growth even as domestic demand weakens. BLOOMBERG