"Petroleum and Agricultural Price Increases Slow"... July Inflation Rate Returns to 2% Range After 3 Months (Comprehensive)

Consumer Prices Up 2.8% Year-on-Year in July

The consumer price inflation rate in July dropped back to the 2% range for the first time in three months. After rising to the 3% range for two consecutive months due to the aftermath of the Middle East conflict, the upward pace of prices has slowed, thanks to the decline in international oil prices and government measures such as the oil price cap and discounts on agricultural, livestock, and marine products. However, upward pressure on prices remains strong, driven by ongoing uncertainties in the Middle East and abnormal weather conditions such as heatwaves. The government has set a target to keep inflation below 3% in the second half of the year and is focusing all its efforts on easing the financial burden on the public.

According to the “July Consumer Price Trends” released by the Ministry of Data and Statistics on August 4, the consumer price index last month stood at 119.77 (2020=100), up 2.8% from a year earlier. Consumer prices had remained stable in the 2% range for some time, but after the impact of the Middle East conflict intensified, the inflation rate rose to 3.1% in May and 3.2% in June—remaining in the 3% range for two consecutive months—before falling back to the 2% range in July.

A price notification board is placed at the Mannam Square Gas Station in Seocho-gu, Seoul. Photo by Yonhap News Agency

The main contributor to inflation, petroleum product prices, saw a noticeable slowdown in their upward trend. International oil prices declined as the risk in the Middle East temporarily eased due to a ceasefire memorandum of understanding (MOU) between the United States and Iran, and with the oil price cap still in effect, petroleum product prices in July were up 15.5% year-on-year. While this is still a significant increase, it is notably lower than last month’s 24.7% rise.

By item, both diesel (from 33.7% to 21.5%) and gasoline (from 23.1% to 12.6%) saw a slower pace of increase compared to June. The Ministry of Economy and Finance estimated that the oil price cap lowered the July inflation rate by 0.3 percentage points. It is analyzed that, without the price cap, inflation in July would have reached 3.1%.

The price of agricultural, livestock, and marine products rose by only 0.9% year-on-year, a sharp slowdown from June’s 3.2% increase. Compared to June, prices actually fell by 0.8%. Typically, prices for these products rise in July due to the heat, but the government’s extensive discount events actually brought prices down. Compared to the previous month, agricultural products declined by 0.8%, livestock products by 0.9%, and marine products by 0.3%. However, compared to the same month last year, livestock and marine product prices still showed significant increases: 4.4% and 3.7% respectively. Domestic beef (5.7%), rice (7.9%), imported beef (8.7%), eggs (7.5%), and mackerel (7.0%) all recorded rates of increase exceeding the overall consumer price inflation rate.

Lee Dowon, Director of Economic Trends at the Ministry of Data and Statistics, commented, “The slowdown in the rate of petroleum price increases was due to factors including declines in international oil prices and exchange rates, and cuts in maximum legal prices. Even though supply instability for agricultural and livestock products persisted due to worsening weather conditions, the fact that inflation returned to the 2% range in July is a positive development.”

Citizens are shopping at a large supermarket in Seoul. Photo by Yonhap News Agency

The government aims to keep consumer price inflation under 3% in the second half of the year. However, the outlook is clouded by renewed uncertainty in the Middle East, and increased volatility in international oil and raw material prices. On top of that, in August there will be a temporary base effect as last August SK Telecom provided a 50% rate discount as compensation for a personal information leak, likely causing a temporary spike in the inflation rate. A Ministry of Economy and Finance official explained, “This year, the inflation rate for mobile phone bills in August is expected to add about 0.6 percentage points to the overall consumer price inflation rate as a base effect.”

To stabilize food prices, the government will continue the all-item discount event for agricultural, livestock, and marine products—which began in July—through August, and will ensure steady imports of eggs and mackerel to stabilize supply and prices. In preparation for the Chuseok holiday, plans for essential goods price stabilization and measures to relieve the burden on vulnerable groups will be announced as part of the Chuseok public livelihood stabilization policy in September. Lee Hyung-il, First Vice Minister of Economy and Finance, said, “Despite the easing of inflationary pressure, the overall upward trend has accumulated, keeping price levels high. In particular, in addition to uncertainty related to the Middle East conflict, base effects from last year’s temporary telecom fee discounts, extreme weather phenomena such as heatwaves, and rising food prices continue to pose risks for further inflation. The government will do its utmost to ease the burden on the public.”

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