Price-curbing policies keep last month’s consumer inflation at 2.2%

Spillover effects from the war in the Middle East pushed prices of petroleum products—including gasoline and diesel—up nearly 10% last month. But with the government’s price-stabilization measures taking effect, such as implementing a cap on maximum oil prices and the Fair Trade Commission’s crackdown on collusion, the consumer inflation rate stayed in the low 2% range.

According to the “March Consumer Price Trends” released on the 2nd by the National Data Agency, the consumer price index (CPI) came to 118.80 (2020=100) last month, up 2.2% from a year earlier. After registering 2.0% in January and February, inflation rose by 0.2% points last month, marking the highest level in three months since December last year (2.3%).

Petroleum products led the rise in prices. Last month, petroleum product inflation was 9.9%, lifting overall inflation by 0.39% points (contribution to inflation). This was the largest increase since October 2022 (10.3%), early in the Russia-Ukraine war.

By item, diesel prices rose 17.0% and gasoline 8.0%. Assessments suggest the maximum price scheme absorbed part of the rise in global oil prices. The government’s additional cuts to fuel taxes are also expected to be reflected in full after April.

Food prices also remained on an unstable trajectory. While overall agricultural prices fell 5.6% last month, gains were pronounced in items with a large share in consumption. Rice prices jumped 15.6%, while livestock products (6.2%) and seafood (4.4%) also posted sizable increases. Domestic beef and pork rose 6.8% and 6.3%, respectively, and egg prices surged 7.8%. The spread of livestock infectious diseases, including African swine fever (ASF), contributed to the trend.

By contrast, prices of processed foods rose only 1.6%. This reflected declines in sugar (-3.1%) and flour (-2.3%). As the Fair Trade Commission’s collusion sanctions gathered pace, related companies lowered factory-gate prices, weighing on processed food inflation.

The government and monetary authorities are putting more weight on the possibility that inflation pressures could intensify further. Lee Doo-won, director for economic trend statistics review at the National Data Agency, said, “Rising global oil prices and a stronger exchange rate will feed into dining-out and processed food prices with a lag.” The Bank of Korea likewise projected that the pace of consumer inflation would pick up after April.

With high oil prices expected to persist, inflationary pressures are also likely to steadily build. The Korea Institute for International Economic Policy (KIEP) forecast that even if the U.S.-Iran conflict ends early, global crude prices in the fourth quarter next year would reach around $90 per barrel—43% higher than pre-war levels ($63 per barrel). It also suggested prices could rise as high as $174 per barrel in the event of escalation.

“If escalation materializes, oil prices are expected to surge to historically unprecedented levels,” KIEP said, adding that “higher energy import costs will place a substantial burden on domestic prices and the current account balance.”

Reporter Kim Ik-hwan lovepen@hankyung.com