"As Fuel Prices Settle, Food and Rent Surge"... Hyundai Research Institute Sees Inflation Up to 3.0% in Second Half

Pressures from Agriculture, Livestock, Fishery Products, Rents, and Public Services
Inflation Could Rise Into the 3% Range if Upside Risks Materialize

As the volatility in international oil prices, which drove inflation in the first half of the year, has somewhat subsided, new factors are emerging to fuel inflation concerns in the second half. Sharp rises in the prices of agricultural, livestock, and fishery products due to heatwaves and heavy rains, as well as rent hikes triggered by the worsening jeonse (long-term housing lease) shortage, have surfaced as new sources of inflationary pressure. There are warnings that, if Middle East risks re-emerge or extreme weather worsens, the consumer price inflation rate in the second half could once again soar above 3%.

On August 2, Hyundai Research Institute, in a newly released report, presented a baseline scenario for the second half of this year's consumer price inflation rate at 2.7% (with a projected range of 2.5–3.0%). The Institute noted that the upward trend in petroleum prices originating from the Middle East—which led to higher inflation in the first half—will temporarily subside as international oil prices stabilize. As a result, the trajectory of inflation in the second half will be determined primarily by the prices of daily essential goods other than petroleum products.

The Institute identified food prices and housing costs as the most significant upward pressures. Prices of agricultural, livestock, and fishery products are expected to rise further due to supply disruptions caused by summer heatwaves and sudden heavy rainfall. Meanwhile, rental prices—especially jeonse—are forecast to continue climbing due to a shortage of available properties, tighter lending regulations, and stricter requirements for actual residence.

Public service prices are also expected to rise more sharply than in the first half, as the base effect from last year's temporary mobile communication fee discounts fades. By contrast, inflation in industrial products is expected to slow somewhat, while prices for electricity, gas, water, and personal services are predicted to remain stable at levels similar to the first half, thanks to the government’s policy of freezing public utility rates.

The main concern lies in the upside risk, which remains open up to 3.0%. The Institute warned that if risks in the Middle East flare up again, climate change events such as a “super El Nino” occur, instability in the real estate market—especially in the Seoul metropolitan area—grows, or companies pass on increased costs due to higher wages, the inflation rate in the second half could reach as high as 3.0%. Conversely, if oil prices stabilize and supply conditions for agricultural, livestock, and fishery products improve, inflation could remain at the lower end of 2.5%.

Hyundai Research Institute advised, “With ongoing volatility in international oil prices, rising prices for essentials could dampen consumer sentiment,” and stressed the need to “strengthen targeted price management for key items, while continuing policy efforts to stabilize people’s livelihoods.”

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