"Record High Liquidity Eases"... August Inflation Hits 'Yearly Peak' Again

August Consumer Prices Up 2.6% YoY, Highest for Two Consecutive Months
5th Month Above 2% This Year, Cumulative Inflation at 2.0%
Fruit and Meat Prices Surge Ahead of Chuseok
From This Month, 11 Trillion Won Disaster Relief and Land Compensation Released... Possible Further Increase

[Image source=Yonhap News]

[Sejong=Asia Economy reporters Kim Hyunjung and Son Seonhee] Last month, consumer prices rose 2.6% compared to the same period last year, marking the highest annual rate for two consecutive months. Prices of industrial products and agricultural and livestock products increased one after another due to rising international oil prices and a prolonged rainy season, and the strong real estate prices continued to push up jeonse and monthly rent prices. Considering that disaster relief funds worth around 11 trillion won will be distributed starting this month, and large-scale land compensation payments for new town developments centered in the metropolitan area will be released until early next year, the annual inflation rate this year is highly likely to significantly exceed the government's management target of 2.0%.

According to the 'August Consumer Price Trends' released by Statistics Korea on the 2nd, the consumer price index last month was 108.29 (2015=100), up 2.6% from the previous year. The inflation rate first exceeded 2% this year in April at 2.3%, followed by 2.6% in May, 2.4% in June, and 2.6% in July. This is the first time in over four years since 2017 (January to May) that inflation has remained in the 2% range for five consecutive months. Eo Unseon, the Economic Trend Statistics Officer at Statistics Korea, explained, "As the economy recovers, demand-side inflationary pressures have expanded, while supply-side factors such as agricultural, livestock, and fishery products and international oil prices were larger than expected."

[Image source=Yonhap News]

◆ Soaring grocery prices ahead of Chuseok... Rent and transportation costs also rise = Looking at the items, prices of goods rose 3.9%, agricultural and livestock products 7.8%, and industrial products 3.2% compared to the previous year. The increase in industrial product prices is the largest since May 2012 (3.5%), caused by rising international oil and raw material prices. The price increases for major industrial products were gasoline 20.8%, diesel 23.5%, and automotive LPG 25.3%.

Prices of agricultural and livestock products, which rose due to deteriorating growing conditions caused by the prolonged rainy season, led the inflation trend along with oil prices. Despite the government's comprehensive policies, egg prices rose 54.6% compared to last year, failing to escape the impact of highly pathogenic avian influenza (AI). The price of a carton of eggs (special grade, 30 pieces), which was in the 7,000 won range last month, dropped to 6,741 won as of the previous day, but it is still 25% higher than the average price (5,414 won). Additionally, watermelon is 38.1%, spinach 35.5%, and pork 11.0% more expensive than last year. Fruit (fresh fruit) prices, which are expected to see increased demand ahead of the Chuseok holiday, rose 27.3%, with the price of pears (Wonhwang variety, commercial grade, 10 pieces) at 32,436 won, 17.8% higher than the average (27,523 won).

Services rose 1.7%, with rent increasing 1.6% and personal services 2.7%. Overall rent rose 1.6%, with jeonse and monthly rent increasing 2.2% and 0.9%, respectively. The increase in jeonse is the largest since January 2018 (2.2%), and the increase in monthly rent is the largest since July 2014 (0.9%). Additionally, transportation costs jumped 8.2% due to the effects of rising oil prices and exchange rates.

◆ Annual inflation likely to exceed 2.0% this year... Highest in 9 years = With the inflation trend continuing this month, the cumulative inflation rate for this year reached 2.0%. If the average inflation rate cannot be kept below 1% over the remaining four months, the annual inflation rate for 2021 could exceed the government's target of 2.0%. The last time annual inflation exceeded 2% was in 2012 (2.2%).

Both domestic and international observers expect further inflationary pressures ahead. Supply and demand factors remain, and disaster relief funds worth around 11 trillion won will be distributed starting this month, with land compensation payments for new towns in the metropolitan area being released until early next year. Officer Eo said, "There are weather factors such as the prolonged autumn rainy season and holiday factors, and expected inflation is also continuously rising. Although upward pressures seem greater, due to government supply measures for essential goods, the increase is not expected to be unexpectedly large." Regarding the effect of the disaster relief fund distribution, he added, "There are differences by industry. Since face-to-face services are still struggling to recover, the inflationary impact may vary depending on how the funds are mainly used."

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