Korean inflation at 24-year high, consumer prices up 5.1% in 2022

A small vegetable store in Seoul in December. While food prices have been stablizing, the rise in electricity rates is expected to keep inflation above 5 percent in January 2023. [YONHAP]

Inflation hit a 24-year high in Korea in 2022, with consumer prices up 5.1 percent.

The pace of increase is expected to remain high next year as electricity rates will be upped 9.5 percent on Jan. 1. Seoul subway and bus fares will increase in April. It will be the first increase since 2015.

According to Statistics Korea on Friday, inflation this year was the highest since the 7.5 percent in 1998.

The 2022 increase is in line with expectations.

Inflation’s recent peak was 6.3 percent in July. Including the 5.0 percent rate this month, the rate has been above 5 percent for eight months.

The government projects inflation will be 3.5 percent in 2023 as the prices of goods come down in the second half. Statistics Korea forecasts the rate to be 4 percent in the first half and 3 percent in the second half.

For this year, utility prices were affected by rising oil prices and the falling won. Year-on-year, utility service prices were up 12.6 percent.

Statistics Korea is forecasting 5 percent inflation for January.

“The prices of manufactured goods rose quickly," said Eo Woon-sun, a Statistics Korea official, in discussing the 2022 figure. "Service prices also rose quickly."

"The biggest contributors were the prices of electricity, gas and water."

Agriculture, livestock and fishery prices rose 3.8 percent, grain prices stabilized and vegetable and fruit prices were up.

Bank of Korea Gov. Rhee Chang-yong recently stressed that the central bank’s monetary policy will still focus on taming inflation.

During a press conference held on Dec. 21, he said there is no guarantee that interest rates will peak at 3.5 percent next year. Currently, the key interest rate is at 3.25 percent, the highest in 11 years.

Rhee said it is too early to discuss lowering the key rate, as there is no solid evidence that inflation has stabilized under the country’s targeted 2 percent.

In a report released on Dec. 27, the central bank projected that interest rates globally will stop increasing in 2023 and prices will being to stabilize. It projects that the U.S. Federal Reserve will likely further raise its interest rates a minimum 0.75 percentage points to over 5 percent in the first half.

The statistics agency expects individual service prices to quickly stabilize considering weakening consumer spending and negative sentiment.

“Considering the recent consumer sentiment, an increase in individual service prices is unlikely,” Eo said.

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