Consumer price inflation in South Korea remained stable for the second consecutive month, supported by Lunar New Year discounts and falling international oil prices. However, analysts warn that if military tensions between the United States and Iran escalate into a prolonged conflict, inflation could rise to as high as 2.7% this year.
According to the National Data Agency on the 6th, the consumer price index rose 2.0% in February compared to the same month last year. This marks the second straight month of 2.0% year-on-year growth following January.
Petroleum product prices fell 2.4% year-on-year in February. Dubai crude dropped from $77.90 per barrel in February last year to $68.40 in February this year.
Agricultural product prices also declined due to Lunar New Year promotional discounts and increased supply. Vegetable and fruit prices fell, bringing overall agricultural prices down 1.4% year-on-year.
Processed food price increases also moderated. Flour prices shifted from a 2.3% year-on-year increase in January to a 0.6% decline in February. Sugar price growth slowed from 0.6% to 0.4% over the same period.
"The Fair Trade Commission's recent launch of a collusion investigation into daily necessities such as sugar and flour is also contributing to the slowdown in price increases," said Lee Du-won, Director of Economic Trend Statistics at the National Data Agency. "We expect the rate of increase to decline further next month."
Nevertheless, some food prices continued to rise. Yellow croaker recorded the highest increase at 18.2% year-on-year, while rice rose 17.7%.
Mackerel (9.2%), pork (7.3%), and eggs (6.7%) also posted significant gains. Pork prices were affected by reduced slaughter numbers due to African Swine Fever, while egg prices remain under pressure from outbreaks of highly pathogenic avian influenza.
International oil prices remain the key variable going forward. With crude prices surging amid U.S.-Iran tensions, rising oil costs could translate into higher refinery and gas station prices, driving up transportation and production costs and adding upward pressure on consumer prices.
"The recent oil price surge began in early March and was not reflected in last month's consumer prices," said Choi Ji-wook, a researcher at Korea Investment & Securities. "Assuming the U.S.-Iran conflict continues through this month, consumer price inflation is estimated to reach around 2.25% next month."
The longer the conflict persists, the greater the inflationary impact. Choi projected that if U.S.-Iran tensions ease quickly, international oil prices could stabilize at $70-80 per barrel. However, if the conflict extends beyond several weeks, prices could rise to $90-100. Should tensions last more than three months, crude could spike above $120 per barrel, potentially pushing domestic consumer price inflation to 2.7%.
Rising producer prices, a leading indicator for consumer inflation, also pose a concern. The Bank of Korea reported that January producer prices rose 0.6% month-on-month, the largest increase since January last year. This marked the fifth consecutive monthly rise.
"Given that producer prices tend to lead consumer prices by about two months, the possibility of further consumer price increases cannot be ruled out," said Jung Won-il, a researcher at Sangsangin Securities.