Consumer price growth in South Korea eased back below 3% last month for the first time in two months. But once the base effect from last year's telecom bill discounts is stripped out, the pace of price increases was actually faster than in August. Core inflation, which excludes food and energy, rose to effectively its highest level this year, a sign that price pressures are not easing readily.
The consumer price index stood at 120.43 last month, with 2020 as the base year of 100, up 2.9% from a year earlier, according to the September consumer price trends report released on the 2nd by Statistics Korea. Consumer price growth had climbed to 3.1% in May and 3.2% in June before falling to 2.8% in July, then rose again to 3.1% in August. It returned below 3% last month but remains above the Bank of Korea's 2% inflation target.
The headline figure suggests inflation has lost momentum, but a closer look shows otherwise. Telecom bill discounts following last year's hacking incident at SK Telecom temporarily depressed prices in August of last year, and excluding that base effect, price growth in August of this year was about 2.5%. On that basis, September inflation was 0.4 percentage points higher.
The Bank of Korea held a price review meeting the same day and said that, given the disappearance of August's temporary base effect, the pace of price increases had somewhat widened.
By item, falling agricultural prices pulled down the overall index. Prices of agricultural, livestock and fishery products fell 0.3%, extending declines for a second month. Agricultural prices alone dropped 4.0%, trimming 0.17 percentage points from overall inflation. Prices of fruit such as apples and pears fell 10.9%, helped by a strong harvest and increased shipments ahead of the Chuseok holiday. Government discount support also contributed to the decline.
Prices of items that weigh on grocery bills rose, however. Livestock prices gained 3.7% and fishery product prices 4.5%, driven by reduced supply and stronger Chuseok demand. Prices of oil products rose 14.8% on higher international crude prices. The government said its price ceiling program for oil products lowered September inflation by 0.6 percentage points, adding that without the ceiling, price growth would have reached 3.5%.
Processed food prices rose 2.1% as food makers' shipment price increases passed through to consumers. Computer prices jumped 27.4% on higher semiconductor component costs, while mobile phone prices rose 8.3% after manufacturers raised shipment prices for new models including Galaxy and iPhone devices.
More notable is core inflation. The index excluding food and energy rose 2.8%, effectively the highest level this year, as price gains in processed food and durable goods widened. Core inflation was 3.4% in August, but excluding the telecom discount base effect, it was around 2.8% at the time.
The Bank of Korea expects prices to remain elevated in October. Lee Ji-ho, deputy governor at the central bank, said consumer price growth in October is also expected to stay near 3% as price gains in core items continue.
An official at the Ministry of Economy and Finance said the government is doing everything it can to respond to external uncertainty but that upside risks remain, including higher international oil prices and swings in grain prices. The official said there is a strong chance consumer price growth will run in the high 2% range from October onward.
