Korea's inflation accelerates as fuel, insurance surge ever higher

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Korea's inflation accelerates as fuel, insurance surge ever higher

The Korean won's exchange rates are displayed at a currency exchange in Jung District, central Seoul, on Feb. 5. [YONHAP]

The Korean won's exchange rates are displayed at a currency exchange in Jung District, central Seoul, on Feb. 5. [YONHAP]

 
Korea’s headline inflation rate accelerated in January, exceeding the 2 percent mark for the first time in five months as the weak domestic currency and the global oil price increases drove the costs of petroleum products.


Consumer prices rose 2.2 percent in January from the month before, according to data Statistics Korea released Wednesday, surpassing the government's 2 percent target for the first time since last August.
 

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The recent depreciation of the local currency against the dollar was responsible for about a 0.1 percentage point increase in inflation, according to the Bank of Korea (BOK). 
 
A sharp increase in fuel prices drove the bulk of the acceleration, spurred by increases in global crude prices and the weak currency. Petroleum rose 7.3 percent on year, following a 1 percent increase recorded the month prior. The price of gasoline rose 9.2 percent on year and that of diesel 5.7 percent.
 
Private service prices pushed up inflation as well, primarily due to an increase in insurance premiums in the beginning of the year and higher demand for tourism during the holiday season. Private service prices, excluding those of dining out, rose 3.5 percent on year in January from 2.8 percent a month earlier.
 
While some agricultural products saw notable increases, with napa cabbage soaring 66.8 percent and white radish up 79.5 percent, the yearly increase in the overall agricultural, marine and livestock product prices decelerated from a month earlier from 2.6 percent to 1.9 percent.
 
The acceleration could complicate the Bank of Korea's interest rate decision, which is currently scheduled for Feb. 25.
 
The central bank expects inflation to moderate around its target range of 2 percent, but said it would “comprehensively assess” the movement of foreign exchange rates and oil prices when setting policy.


Prices of gasoline and diesel are displayed at a gas station in Seoul on Feb. 2. [NEWS1]

Prices of gasoline and diesel are displayed at a gas station in Seoul on Feb. 2. [NEWS1]


 
“The CPI increase accelerated due to the steep rise of petroleum product prices, driven by the higher foreign exchange rate and global oil prices,” noted BOK Deputy Gov. Kim Woong during an inflation-monitoring meeting at the central bank on Wednesday.
 
“Inflation is expected to moderate for a while due to a base effect of petroleum and agricultural product prices [last year] and low demand pressure,” said Kim, projecting the inflation would ultimately stabilize around the target mark.
 
“Given the heightened uncertainty surrounding the foreign exchange rate and oil price movement, domestic demand and agricultural product prices, the BOK will announce its revised growth outlook based on a comprehensive assessment of such factors in February,” the senior central banker said.
 
Korea’s inflation has been largely moderate throughout the latter half of 2024, remaining below the 2 percent threshold since September when the consumer price rose 1.6 percent on year, followed by the yearly increase of 1.3 percent in October, 1.5 percent in November and 1.9 percent in December.
 
 
Core inflation, which excludes volatile food and energy prices, came in at 1.9 percent for the month.
 
The cost of living index, which tracks changes in the prices of 144 frequently purchased consumer goods and services, rose 2.5 percent.
 
Updated, Feb. 5: Added comments from the Bank of Korea.

BY SHIN HA-NEE [[email protected]]
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