July Consumer Prices Up 2.3%... Lowest in 25 Months (Comprehensive)

Petroleum Prices Fall 25.9% Due to Base Effect

The consumer price inflation rate remained in the 2% range for the second consecutive month. In July this year, the consumer price inflation rate recorded 2.3%, falling to the lowest level in 25 months. The main factors were a sharp drop in petroleum products due to the decline in international oil prices and the base effect.

According to the 'Consumer Price Trends for July 2023' released by Statistics Korea on the 2nd, last month's consumer price inflation rate was 2.3% compared to the same month last year. This is the lowest level in 25 months since June 2021 (2.3%). Prices, which had surged to 6.3% in July last year, have significantly slowed down. Since the beginning of this year, the inflation rate has narrowed for six consecutive months following 5.2% in January.

The slowdown in consumer prices is due to the decline in petroleum product prices and the base effect. Due to the drop in international oil prices, petroleum product prices fell by 25.9% compared to the same month last year, marking the largest decline since January 1985 when related statistics began. Diesel fell by 33.4%, gasoline by 22.8%, and automotive LPG by 17.9%. Kim Bo-kyung, Economic Trend Statistics Officer at Statistics Korea, explained, "The contribution of petroleum products to the year-on-year inflation rate is -1.49 percentage points, which was a major factor in recording inflation in the 2% range." This means petroleum products lowered the overall inflation rate by about 1.5 percentage points.

The inflation trend for electricity, gas, and water prices, which are affected by petroleum product prices, also showed a slowdown. Although prices rose 21.1% compared to the same month last year, the increase narrowed compared to the previous month (25.9%). The base effect was also significant, as the consumer price inflation rate surged to 6.3% in July last year. The price of dining out, which had driven consumer prices up, also slowed to 5.9%, the lowest in 18 months since January 2022 (5.5%).

Due to the heavy rains last month, vegetable prices rose 7.1% compared to the previous month. In particular, prices of lettuce (83.3%), spinach (66.9%), and young radish leaves (55.3%) increased significantly compared to last month. Prices surged mainly for facility-grown vegetables severely affected by the heavy rain damage. Officer Kim explained, "Vegetable prices rose sharply in late July," adding, "Statistics Korea conducts vegetable price surveys three times a month, and the impact of the heavy rain appeared in the third survey, so the overall fluctuation rate appeared low, but it will be reflected in August." However, vegetable prices fell 5.3% compared to the same month last year, as prices were high last year due to the heatwave. Prices of agricultural, livestock, and fishery products rose 1.7% compared to the previous month but fell 0.5% compared to the same month last year.

The core inflation rate (excluding agricultural products and petroleum products), which reflects the underlying trend of prices, rose 3.9% compared to the same month last year, marking the lowest level in 15 months since April last year (3.6%). The inflation rate excluding food and energy also remained subdued at 3.3%, continuing the downward trend from April (4.0%), May (3.9%), and June (3.5%). The living cost index rose 1.8% compared to the same month last year, narrowing from 2.3% in the previous month.

Officer Kim said, "Until July, there was a base effect due to the sharp rise in consumer prices last year," adding, "From August onward, the base effect will disappear, so it may be difficult for this slowdown trend to continue."

The Bank of Korea held a 'Price Situation Review Meeting' on the same day and forecasted that consumer prices will rise again in August and fluctuate around 3% until the end of the year. Kim Woong, Deputy Governor of the Bank of Korea, said, "The core inflation rate is expected to slightly exceed the May forecast (annual 3.3%) and show a gradual slowdown trend," adding, "There is high uncertainty regarding the future inflation path related to international oil price trends, weather conditions, and domestic and international economic conditions."

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