South Korea's consumer inflation fell back below 3% in September for the first time in two months, but analysts said the underlying pace of price gains actually quickened during the month. Core inflation, which shows the trend in prices, hit what was effectively its highest level this year.
The consumer price index stood at 120.43 in September, up 2.9% from a year earlier, according to data released on the 2nd by the National Data Agency. The index uses 2020 as its base year of 100. Consumer inflation had climbed to 3.1% in May and 3.2% in June on the impact of the war in the Middle East, then eased slightly to 2.8% in July. It rose again to 3.1% in August before dipping back below 3% last month. Inflation has run well above the Bank of Korea's 2.0% target for about half a year since the Middle East conflict began.
Still, August inflation was only about 2.5% when stripped of a base effect from telecom bill discounts tied to last year's SK Telecom hacking compensation. On that basis, September prices rose roughly 0.4 percentage point faster than in August. The Bank of Korea, which chaired a price review meeting the same day, said the pace of price increases had "widened somewhat" once the temporary August base effect is taken into account.
By item, agricultural, livestock and fisheries products fell 0.3%, extending declines for a second month. Farm produce prices dropped 4.0%, pulling the overall index down by 0.17 percentage point. Fruit, including apples and pears, fell 10.9% on a strong harvest and increased shipments ahead of the Chuseok holiday. Government discount support programs also helped push prices lower.
Livestock and fisheries products, by contrast, rose 3.7% and 4.5%, respectively, on lower supply and stronger holiday demand. Petroleum product prices extended gains, rising 14.8% on higher global crude prices. The government said its price ceiling program held down the increase, lowering September inflation by 0.6 percentage point. Without the ceiling, inflation would have reached 3.5%, according to the government's estimate.
Processed food prices rose 2.1% as food makers passed on higher factory-gate prices. Computers climbed 27.4%, staying above 20% growth on rising semiconductor component costs, while mobile phones rose 8.3% after price increases on new Galaxy and iPhone models.
As a result, the index excluding food and energy, a gauge of core inflation, surged 2.8%, effectively the highest reading of the year. Bigger gains in processed food and durable goods drove the increase. Core inflation had risen 3.4% in August, but the rate was just 2.8% excluding the effect of the SK Telecom telecom discounts.
The Bank of Korea expects prices to remain elevated in October. "October consumer inflation is also expected to stay at a high level of around 3% as core items continue to rise," Deputy Governor Lee Ji-ho said. An official at the Ministry of Economy and Finance said the government is "doing everything it can to respond to external uncertainty," but added that upside risks remain, including higher global oil prices and swings in grain costs. "I think there is a good chance consumer inflation will be in the high 2% range from October onward," the official said.
