Inflation in Korea to remain high, KDI projects

Economy

Published: 12 Feb. 2023, 17:23 Updated: 12 Feb. 2023, 19:55

Inflation in Korea to remain high, KDI projects

Buses on the street in Seoul on Sunday. The price of public transportation in Seoul may increase between 300 won ($0.24) and 400 won in April. [YONHAP]

Inflation is projected to remain high as utility and transportation prices continue to rise.

The Korea Development Institute (KDI) on Thursday revised its forecast for inflation this year to 3.5 percent from 3.2 percent.

“Despite slowing global crude price increases, supply-side inflation pressure has been reflected in public utility charges,” according to a report from the state-run KDI on Thursday. “Considering the influence of the rise in public utility charges, the growth in core inflation, excluding food and energy, has also been revised up.”

The KDI raised its estimate for core inflation for this year to 3.4 percent from the previous 3.3 percent.

Bank of Korea projects five percent inflation to stay through February.

“Consumer prices in January grew from a month earlier despite a slowdown in oil price growth due to the rise of electricity fees and agricultural products caused by the cold weather,” said Lee Seung-heon, senior deputy governor at Bank of Korea, earlier this month. “Consumer prices are expected to grow at around 5 percent this month again,” Lee said, citing the rise in raw material and oil prices from China’s reopening.

In January, the public utility price index went up 31.7 percent from the same period a year earlier, according to the Korean Statistical Information Service. It was the steepest increase since the 38.2 percent in April 1998.

Electricity prices jumped 29.5 percent, while gas prices rose 36.2 percent.

January’s 5.2 percent inflation followed 5.0 percent in November and December.

Public utility charges are projected to rise further.

The basic taxi fare in Seoul rose by 1,000 won ($0.8) to 4,800 won this month, the first increase in nearly four years. The fare has been increased in other cities, including Daegu, which raised the basic taxi fare by 700 won to 4,000 won last month. Gyeonggi Province is considering shortening the distance covered in the basic fare from 2.0 kilometers (1.24 miles) to 1.6 kilometers while upping the rate by 1,000 won to 4,800 won.

Seoul is also reviewing raising subway and bus fares by between 300 won and 400 won starting in April. The base fare for the subway is 1,250 won and the city bus 1,200 won.

Korea’s inflation is projected to be affected by China’s reopening. China’s lifting of Covid restrictions is seen as driving inflation.

China’s consumer prices in January were up 2.1 percent on year, according to the country’s National Bureau of Statistics. The International Monetary Fund expects China’s GDP to expand 5.2 percent this year, compared with 3 percent last year.

The recovery in China is expected to not only push up consumer prices, as consumers increase spending, but also affect global energy prices as demand for oil and natural gas could increase and ripple through to global markets.

“If China’s economy starts to pick up in the second half, oil prices could rise,” said Bank of Korea Gov. Rhee Chang-yong in a press conference last month, explaining the reason the central bank projects inflation to stay above the target this year.

BY JIN MIN-JI [jin.minji@joongang.co.kr]