Five Months of '3% Range' High Inflation... Government Urgently Extends Fuel Tax Cut (Comprehensive)

February Consumer Price Inflation Rate 3.7%... Sustained Above 3% for 5 Consecutive Months
First Price-Related Ministers' Meeting Convened Under Moon Administration
Comprehensive Measures Including Extension of Fuel Tax Cut and Expansion of Allocated Tariffs on International Grains and Key Raw Materials

[Asia Economy Sejong=Reporters Kim Hyewon and Son Seonhee] Domestic consumer prices have maintained a 3% range increase for the fifth consecutive month. The surge in international oil prices due to the Ukraine crisis pushed up fuel costs, and dining-out prices rose at the largest rate since December 2008 amid economic recovery.

As inflationary pressures intensified due to domestic and international uncertainties, the government decided to extend the fuel tax reduction, originally set to end in late April, by three months until the end of July.

The Statistics Korea announced on the 4th that the consumer price index for February was 105.30 (2020=100), up 3.7% compared to the same month last year.

The consumer price inflation rate, which had been moving below 2% since March 2012, rose to the 3% range in October last year for the first time in 9 years and 8 months, and has remained in the 3% range for five consecutive months.

Last month, prices of both goods (4.3%) and services (3.1%) rose together, driving the overall consumer price increase. In particular, petroleum products rose by 19.4%, and dining-out prices increased by 6.2%, contributing about 1.6 percentage points to the overall increase (3.7%).

The core inflation rate, which excludes agricultural products and petroleum, rose by 3.2%. This is the largest increase in 10 years and 2 months since December 2011 (3.6%). The OECD-standard core inflation index, excluding food and energy, rose by 2.9%, marking the largest increase since June 2009 (3.0%).

Hong Namki, Deputy Prime Minister and Minister of Economy and Finance, held the first inflation-related ministers' meeting under the Moon Jae-in administration and announced plans to extend the fuel tax reduction for three more months and consider expanding the reduction rate from the current 20% depending on international oil price trends.

'All-out effort to curb inflation' Government convenes inflation-related ministers' meeting for the first time in five years... policy measures such as extending fuel tax cuts and expanding applied tariff quotas

As domestic consumer prices have maintained a high inflation rate above 3% for more than five months for the first time in 10 years, the government has entered an emergency stance to control inflation. Following the three-month extension of the fuel tax cut, additional reductions are under consideration, and comprehensive responses are underway, including expanding applied tariff quotas on international grains and key raw materials whose prices and supply are unstable due to the Ukraine crisis. The convening of the inflation-related ministers' meeting for the first time in over five years since January 2017 during the Park Geun-hye administration appears to stem from concerns that high inflation could dampen the recovering domestic economy.

The 3.7% consumer price increase in February, marking five consecutive months in the 3% range, is largely due to the surge in international oil prices. By item, goods prices rose 4.3% year-on-year, with liquefied petroleum gas (LPG) for automobiles (23.8%), diesel (21.0%), and gasoline (16.5%) all rising sharply, causing petroleum product prices to surge by 19.4%. The contribution of petroleum products to inflation was 0.79 percentage points.

Service prices (3.1%) also rose in tandem. Dining-out prices jumped 6.2%, driven by significant increases in raw fish (9.8%) and beef (8.2%). This is the largest increase since December 2008 (6.4%). The contribution of dining-out prices to service inflation was 0.78 percentage points. Personal services, including dining-out and others, rose 4.3%, marking the largest increase since February 2009 (4.4%).

Oh Unseon, Director of Economic Trend Statistics at Statistics Korea, said, "External inflationary factors such as rising international oil and grain prices and global supply disruptions, combined with geopolitical factors like the Ukraine crisis, may further worsen consumer prices," adding, "Inflation is expected to continue rising next month." Although it did not reach the psychological resistance level of 4%, the government diagnoses that inflationary pressures will intensify throughout the year.

On the same day, the government convened the first inflation-related ministers' meeting under the Moon Jae-in administration and pledged to mobilize all available policy tools to curb the spread of inflation expectations. First, the 20% fuel tax cut and the 0% applied tariff on liquefied natural gas (LNG), scheduled to end in late April, will be extended by three months until the end of July, with room left to further expand the fuel tax cut depending on international oil price trends. Considering the legal maximum fuel tax cut limit of 30%, cuts of 25% or 30% are possible.

In response to rising international grain prices due to the Ukraine crisis, the interest rates on funds for purchasing feed and food raw materials (KRW 64.7 billion for feed and KRW 128 billion for food) will be lowered by 0.5 percentage points from the current 2.5?3.0% to 2.0?2.5%. The quota for substitute feed grains will be increased from 40,000 tons to 100,000 tons for hulless barley and from 30,000 tons to 60,000 tons for wheat bran. Additionally, the credit limit for non-ferrous metals market releases will be expanded from KRW 3 billion to KRW 5 billion, and the release period extended by three months. These temporary measures will be extended through the first half of this year.

Deputy Prime Minister Hong said, "We will review the supply and demand situation of key items with high external dependence used in semiconductor manufacturing processes, such as neon and krypton, and decide on the application of applied tariffs by March." He added, "This is a very critical time when some are even expressing concerns that the world may enter a vicious cycle of inflation again. High inflation reduces real income, which can harm livelihoods and economic recovery. Therefore, from a macroeconomic management perspective, it is crucial to focus on stabilizing prices in the first half of the year to prevent the spread of inflation expectations."

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