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[Editorial] Worrisome inflation data

Consumer prices continue to surpass 3% amid worries about more volatility ahead

By Korea Herald

Published : April 5, 2024 - 05:31

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South Korea’s consumer prices, a key gauge of inflation, rose 3.1 percent on-year for the second-straight month in March, driven by skyrocketing prices of fruits and strong oil prices, Statistic Korea data showed.

More important than the headline figures is that a growing number of consumers are feeling a far stronger pinch in their pockets, especially when they browse the lofty price tags of grocery store items.

It may not be such a shocking development that consumer prices stayed above 3 percent for two months in a row, only after falling below 3 percent in January for the first time since July 2023.

But the continued elevation of prices above 3 percent cannot be lightly ignored by government officials in charge of economic policies or the Bank of Korea, whose mid-term goal is to rein in inflation to below the 2 percent range.

Leading the increase in prices are agriculture, livestock and fishery products, which jumped 11.7 percent on-year last month. Among the three categories, agricultural products stood out by spiking 20.5 percent in a way that jacked up overall inflation by nearly 0.8 percentage points.

The most dramatic price hike came for apples, the price of which soared 88.2 percent in March, the highest level since 1980 when authorities began to compile price data. In addition, prices of pears surged 87.8 percent, setting another all-time high record. Statistics Korea data revealed that there is a serious price issue with fruit, as the combined prices of 18 major kinds of fruit rose by a whopping 40.3 percent in March.

Compared with other countries, Korea’s fruit prices are spinning out of control. According to NUMBEO, which tracks price rankings by country and city, South Korea’s apple price was quoted at $6.82 per 1 kilogram as of March 26, the highest among 95 countries surveyed. Other items such as bananas, potatoes and oranges were sold here at higher prices than in other countries as well.

Government officials have been trying to tame the surging prices of fruit, caused mainly by poor harvests and climate change-induced unfavorable weather conditions, but there has been no visible improvement in the tight fruit market. Last year, the production volume of apples tumbled 30 percent due to abnormally cold temperatures in spring and torrential rains during the summer. These conditions forced many consumers to opt for other kinds of fruit, including pears and tangerines, a change that unsurprisingly made their prices rise as well.

While the government failed to reverse the upward price trend of fruit even with discount programs in recent months, experts say complicated distribution and logistics networks are also to blame, as they tend to inflate fruit prices beyond a reasonable level.

The government has expressed its expectations that prices will stabilize from April, but it is difficult to forecast that inflation will fall below 3 percent any time soon, considering higher volatility in the global energy market and the weakening value of the Korean currency, which could translate into higher import prices.

Oil prices, which have climbed more than 10 percent this year, are now at a five-month high amid reports that an Iranian consulate in Damascus, Syria, was hit by a missile strike. Iran said it would take revenge on Israel for the airstrike, but Israel has not claimed responsibility for the attack, a sign of escalating conflicts in the Middle East.

On Tuesday, the West Texas Intermediate contract for May delivery gained 1.7 percent to $85.15 a barrel and the Brent contract for June delivery also rose 1.7 percent to settle at $88.92 a barrel.

Some observers forecast that oil prices will continue to surge to as high as $100 a barrel around September this year, citing growing geopolitical risks such as the airstrike on Iran’s embassy compound in Damascus, Ukraine’s strikes on Russian oil refineries and Houthi rebel attacks in the Red Sea.

Against this disquieting backdrop, the government and the BOK should draw up more effective policy measures to stabilize consumer prices rather than projecting a rosy outlook that appears increasingly unconvincing.