Korean inflation hits 6 percent in June, a 24-year high

A customer shopping for groceries at a store in Seoul on Monday. Inflation in June rose 6 percent, the highest in 24 years. [YONHAP]

Inflation hit a 24-year high in June as prices, especially of commodities, rose globally and the won declined to a 13-year low.

Korean consumer prices were up 6.0 percent in June on year, according to Statistic Korea Tuesday. The last time they rose at this pace was in 1998, as country was in the depths of the Asian financial crisis.

Prices rose across the board, with everything from manufactured goods to groceries becoming more expensive.

"Rising international crude prices are not only affecting energy prices but influencing manufactured goods and even groceries," said Eo Woon-sun, head of the short-term economic statistics bureau at Statistics Korea.

Transportation costs were up 16.8 percent on year, food and non-alcoholic beverage prices 6.5 percent, clothing and footwear 3.1 and communications 1.0 percent.

No decline was reported in any category.

Manufactured goods prices rose 9.3 percent year-on-year, the sharpest increase since September 2008's 9.3 percent. Diesel prices were up 50.7 percent and gasoline prices 31.4 percent. Agriculture, livestock and fishery goods prices were up 4.8 percent, pork prices 18.6 percent and imported beef 27.2 percent.

Services were 3.9 percent more expensive on year. The cost of dining out rose 8 percent, the sharpest increase since February 1998's 8.1 percent.

Eo said that at the current pace inflation will be 4.7 percent full year.

"But that's unlikely. And we expect it to rise higher than 4.7 percent," he added.

S&P predicts 5 percent inflation this year, while the government increased its outlook to 4.7 percent from 2.2 percent last month.

Inflation has been picking up quickly, with the consumer price index in deflationary territory in late 2019 and early 2020. Full-year 2021, the rate was 2.5 percent. In May this year, inflation was 5.4 percent.

Electric and gas rates are increasing this month, and that is seen having an impact.

"Obviously they will have a negative effect," Eo told reporters.

Electricity has been upped by 5 won per kilowatt-hour and electricity by 1.11 won per megajoule.

Rising inflation is adding pressure on the central bank to further raise interest rates, though the high level of borrowings in the country — with household debt at 106.7 percent of GDP — makes rapid increases potentially destabilizing.

The Bank of Korea raised the base rate by 25 basis points to 1.75 percent in May. It was the second consecutive rate rise and the fifth in the current round of monetary tightening that began last August.

HSBC on Tuesday projected the bank will raise the key interest rate 0.25 percentage points three more times this year, bringing it up to 2.5 percent.

JP Morgan projects the central bank will make a major increase this month and then increase the base rate by 0.25 percentage points three additional times, to 3 percent by the end of the year.

Balancing the signs of inflation are indicators that a recession may be coming soon.

Inventories are building up fast, at U.S. retailers and for electronic manufacturers, while the Atlanta Fed's GDPNow estimate service anticipates a fall in second-quarter GDP, which would mean a recession in the U.S.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]