July Consumer Prices at '2.6%' Again a Record High... Volatility Expands Due to 'Heatwave' Factor

July Consumer Price Trends

[Sejong=Asia Economy Reporter Son Seon-hee] Last month, consumer prices rose by 2.6%, marking the highest level again following May. The inflation rate, which had been steadily increasing since the beginning of the year, seemed to pause in June but is now soaring again due to supply and demand instability caused by the heatwave. Contrary to the government's expectation that prices would stabilize in the second half of the year, volatility is expanding ahead of Chuseok.

According to the 'July Consumer Price Trends' released by Statistics Korea on the 3rd, the consumer price index last month was 107.61 (2015=100), up 2.6% compared to the same month last year. This increase matches the 2.6% peak recorded in May, which was the highest in 9 years and 1 month.

Due to poor crop yields caused by the heatwave, agricultural product prices generally surged, and egg prices rose more than 1.5 times compared to a year ago due to the impact of avian influenza (AI), resulting in an overall 9.6% increase in prices of agricultural, livestock, and fishery products. Eo Un-seon, Director of Economic Trend Statistics at Statistics Korea, explained, "The impact of poor crop yields last year and early this year continued, causing agricultural product prices, centered on fruits and grains, to rise by 11.1%. Livestock products also increased by 11.9%, mainly eggs, pork, and domestic beef, due to AI outbreaks, the heatwave, and increased demand."

Influenced by the continued high international oil prices, prices of industrial products such as gasoline (19.3%) and diesel (21.9%) also rose by 2.8% during the same period. Service prices increased by 1.7%, and electricity, water, and gas prices, which had previously recorded negative growth, rose by 0.3%. This was due to the reduction of electricity bill discounts applied in July last year and the disappearance of the effect of city gas price cuts.

With prices rising across various sectors, the living cost index, which is composed of items sensitive to consumer price changes, increased by 3.4% compared to a year ago. This is the highest increase in 3 years and 11 months since August 2017 (3.5%).

The inflation rate for the second quarter, when prices rose intensively, recorded 2.5%, already far exceeding the government's annual inflation management target of 2.0%. The government initially expected prices to stabilize in the second half of the year, but due to unexpected variables such as the heatwave, the inflation rate started the second half above the mid-2% range. Additionally, concerns have emerged that the COVID-19 coexistence national support fund (250,000 KRW per person), scheduled to be distributed intensively next month, may further fuel inflation.

The Ministry of Economy and Finance stated, "We will focus our policy efforts on stable price management with special vigilance in preparation for the possibility of continued upward pressure on prices. In particular, to stabilize living costs for low-income households, we will proactively respond with all our efforts to ensure that agricultural, livestock, and fishery product prices stabilize before Chuseok."

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