Inflation falls to slowest pace in year and half in May

People shop at a discount store in Seoul on Friday. [YONHAP]

Korea’s inflation grew 3.3 percent in May, accelerating at the slowest pace in more than a year and a half.

The on-year consumer prices slowed from 3.7 percent a month earlier and was the fourth consecutive month inflation fell, Statistics Korea data revealed Friday.

Falling oil prices and the base effect from the rapid jump in consumer prices last year helped slow inflation.

Consumer prices have been falling after reaching a peak of 6.3 percent in July last year but continues to stay above the target 2 percent rate due to the rapid jump in prices of public utility fees and services.

Prices of electricity, gas and water jumped 23.2 percent on year, while that of services grew 3.7 percent in the same period due to higher insurance and housing management costs. Personal services, which include dining out, grew prominently at 5.6 percent.

Prices of agricultural, fisheries and livestock products inched down 0.3 percent thanks to the stabilized costs of pork and beef products, though prices of chicken and mackerel increased. Industrial product prices grew 1.8 percent, but those of diesel fell 24 percent and gasoline 16.5 percent.

Core inflation, which excludes volatile food and energy prices, remained robust, rising 3.9 percent. The figure was slightly down from 4.0 percent a month earlier.

“The figure is very likely to fall for two to three months due to the base effect from last year,” said Kim Bo-kyung, a senior official at Statistics Korea, Friday. “Unless unusual factors arise, prices will stabilize for the time being.”

“There is a chance that consumer price growth will reach a low 2 percent as a clear downward trend in prices continues through mid-year,” said the Bank of Korea in a statement Friday. “But the prices are projected to reach back to around 3 percent at the end of the year following a fluctuation.”

The central bank cited uncertainties in global oil prices, economic flow inside and outside Korea and the jump in public utility fees.

Bank of Korea kept the policy rate unchanged at 3.50 percent in late May, saying it would be premature to mention the timing of a rate cut until there’s evidence inflation is approaching the targeted 2 percent.

The central bank last month projected inflation at 3.5 percent for this year, remaining unchanged from the February forecast. It revised down next year’s forecast to 2.4 percent from the previous 2.6 percent.

Inflation stayed above the target rate for the 26th month straight in May.

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