South Korea’s consumer inflation ticked up in July, breaking a three-month streak of declines due to supply-side pressures and adverse weather conditions. Official data released on Friday revealed that the consumer price index (CPI) increased by 2.6% compared to the same month last year, surpassing the market expectation of 2.5% and rising from June’s 2.4%, which had been the lowest rate in 11 months.
The July CPI also showed a 0.3% month-on-month increase, reversing June’s 0.2% decline and marking the fastest monthly rise in five months. This uptick was driven primarily by significant jumps in petroleum products, which surged 3.3%, and agricultural goods, which saw a 0.9% increase. Vegetable prices, in particular, spiked by 6.3% due to weather-related disruptions affecting supply chains.
Finance Minister Choo Kyung-ho had anticipated such a rise, attributing it to abnormal weather patterns and base effects. He has forecasted stabilization in inflation starting from August. Despite this, the Bank of Korea maintained its key interest rate at a 15-year high of 3.50% during its last meeting and indicated potential future rate cuts, though the board remains divided on timing.
Core inflation, which excludes the more volatile food and energy sectors, held steady at 2.2% for the third consecutive month. This stability in core inflation suggests that underlying inflationary pressures remain moderate despite the recent headline inflation increase.
The rise in inflation highlights ongoing concerns about the future trajectory of South Korea’s economy. The Bank of Korea’s reluctance to further raise interest rates suggests a cautious approach to ensuring long-term economic stability. The coming months will be critical in determining whether this inflationary spike is a temporary blip or indicative of more persistent trends.
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