Despite Middle East-Driven Petroleum 'Shock', March Inflation Holds at 2.2%... Agricultural Supply and Policy Measures Provide Shield (Comprehensive)

Swift Policy Response Partially Offsets Oil Price Surge

Collusion Probe by Fair Trade Commission Stabilizes Processed Foods

Amid concerns that consumer price inflation could soar to the mid-2% range due to a surge in international oil prices following the Middle East war, the inflation rate for March recorded a better-than-expected 2.2%. Although petroleum products saw their highest price increase since October 2022, putting upward pressure on overall prices, the implementation of the petroleum maximum price system, increased agricultural supply due to rising temperatures, and stabilization of processed food prices following a Fair Trade Commission investigation into price collusion all helped curb the overall inflation rate.

A gas station in downtown Seoul. Photo by Yonhap News.

Petroleum Prices Soar 9.9%... Partially Offset by Maximum Price System

According to the "Consumer Price Trends for March 2026" released by the Ministry of Data and Statistics on April 2, last month's consumer price index stood at 118.80 (2020=100), up 2.2% from the same month last year. After recording a 2.0% increase for two consecutive months, the index turned upward for the first time in three months. However, compared to market concerns that inflation would reach the mid-2% range, the increase was relatively moderate.

The main driver of inflation this month was, once again, petroleum products. After falling by 2.4% year-on-year last month, petroleum prices rebounded sharply this month with a 9.9% increase. This is the highest jump in three years and five months since October 2022 (10.3%). The contribution of petroleum to the inflation rate surged from -0.09 percentage points last month to 0.39 percentage points this month, leading the overall rise in the index. Gasoline rose 8.0% and diesel soared 17.0%. However, the implementation of the maximum price system partially offset the impact of rising international oil prices, and the reduction in fuel taxes is expected to be fully reflected from April onward. The transportation sector, which is highly sensitive to oil prices, saw its largest increase in one year and eight months, rising 5.0%.

Lee Dowon, director of economic trend statistics at the Ministry of Data and Statistics, explained, "Going forward, the rise in petroleum prices could lead to an increase in international airfares and other costs. However, as of now, price effects have not yet been observed in secondary products using petroleum or in the food service industry."

Agricultural and Processed Food Products Serve as 'Shields' Against Inflation... Clear Impact of Collusion Investigation

Agricultural, livestock, fisheries, and processed food products acted as 'shields' in dampening inflation. Due to rising temperatures, the supply of vegetables, strawberries, oranges, and other produce increased, causing agricultural product prices to drop by 5.6% year-on-year. This is a steeper decline than last month (-1.4%), with the drop widening by 4.2 percentage points. The contribution of agricultural products to inflation was -0.19 percentage points, helping to restrain the overall inflation rate.

For processed foods, the year-on-year increase slowed from 2.1% last month to 1.6% this month. The contribution to inflation also shrank by 0.04 percentage points to 0.14 percentage points. In particular, sugar saw its steepest drop since September 2023 (-3.8%), falling by 3.1%, while flour posted its lowest rise in 18 months at -2.3%. Both sugar and flour have been subject to Fair Trade Commission investigations or announcements of sanctions against related companies for collusion this year, which has led to voluntary price reductions throughout the industry, including lower shipment prices.

In the service sector, the removal of the lunar new year holiday peak season effect led to a 3.2% year-on-year rise in personal services prices, down from 3.5% in February. Director Lee explained, "This was due to a reversal or slowdown in the previous surge in rental car fees, condominium usage fees, and overseas group travel costs during the holiday period." The combined contribution of personal services, public services, and rent to inflation declined by 0.15 percentage points compared to the previous month, helping further restrain the overall rate. However, durable goods prices rose 2.0% year-on-year, an increase of 0.5 percentage points from February. Factors included higher prices for computers (12.4%) and mobile phones (2.3%) due to new product launches, as well as an end to furniture sales resulting in a return to regular prices.

Core inflation, which excludes agricultural and petroleum products and shows the underlying trend of prices, rose 2.3% year-on-year, continuing a stable trend lower than the previous month's 2.5%. The OECD-standard core inflation index, which excludes food and energy, also grew by 2.2% year-on-year, a slower rise than February's 2.3%.

The Ministry of Economy and Finance stated, "Given the uncertainty stemming from the impact of the Middle East war and heightened volatility in international oil prices, the government will make every effort to stabilize consumer prices. In particular, we will continue price stabilization measures such as the implementation of the maximum price system for petroleum products and energy supply management, and through the operation of the 'Task Force on Livelihood Prices' and the 'Middle East War Price Response Team,' we plan to closely monitor key items and respond swiftly."

This content was produced with the assistance of AI translation services.