South Korea's consumer price inflation climbed back into the 3 percent range last month, as a prolonged Middle East conflict pushed up global oil prices and holiday-season travel demand drove up service costs. With energy prices joined by rising airfares and accommodation costs, inflationary pressure is spreading across the board. The Bank of Korea (BOK) expects elevated price levels to persist for some time, as the oil shock is likely to filter through to other items with a lag.
According to the "May Consumer Price Trends" released by the National Data Agency on the 2nd, last month's consumer price index stood at 119.92, up 3.1 percent from the same month a year earlier. It is the first time consumer inflation has reached the 3 percent range since March 2024. After staying at 2.0 percent in January, the inflation rate has gradually accelerated this year, rising to 2.2 percent in March, 2.6 percent in April and 3.1 percent in May.
The biggest contributor was petroleum product prices. Petroleum products rose 24.2 percent from a year earlier, pushing up overall inflation by 0.92 percentage point. The increase was the largest since July 2022. By item, gasoline prices jumped 23.1 percent and diesel prices surged 33.3 percent, fully reflecting the rise in international oil prices.
Travel-related costs also rose sharply on holiday demand. International airfares climbed 33.5 percent year-on-year on higher fuel surcharges, the steepest gain since the statistic began. Overseas package tour fees rose 26.3 percent, and domestic airfares advanced 29.0 percent. Passenger car rental fees and hotel accommodation rates rose 25.7 percent and 9.3 percent, respectively, lifting personal service prices by 3.7 percent.
Higher energy prices also affected core inflation, which reflects underlying price trends. Core inflation, which excludes food and energy, rose 2.5 percent from a year earlier, the highest reading since February 2024. Analysts say the oil price increase is no longer confined to the energy sector but is beginning to spread across overall prices.
The burden on everyday living costs felt by consumers has also grown. Living-cost inflation rose 3.3 percent from a year earlier, exceeding the overall consumer price increase. It is the highest level since April 2024. With prices of frequently purchased food and energy rising together, households' perceived burden is seen to have grown further.
Food prices also continued to climb. Livestock product prices rose 5.8 percent, while seafood prices increased 5.0 percent. By contrast, the fresh food index fell 1.4 percent as vegetable prices remained stable.
The government believes that fuel tax cuts and the petroleum product price ceiling helped moderate the increase. The Ministry of Economy and Finance estimated that without these measures, last month's consumer inflation rate would have risen to as high as 3.7 percent.
The outlook, however, remains uncertain. Experts view the current price increases as the early stage reflecting the direct impact of the oil price surge. Additional inflationary pressure remains, they say, as it takes time for higher crude oil prices to feed through transportation and logistics costs into processed food, dining out and various service prices.
"The impact of the worsening Middle East situation has not yet spread to processed foods or agricultural, livestock and fisheries prices overall," said Lee Doo-won, an economic trends statistics review officer at the National Data Agency. "Considering the lag on the supply side, we need to continue monitoring the future price trajectory."
The Bank of Korea also expects the upward trend in prices to be difficult to reverse easily. "The future price trajectory will be heavily influenced by the situation in the Middle East and movements in international oil prices," said Lee Ji-ho, director general of the BOK's economic research department. "As the impact of higher oil prices gradually spreads to other items, inflation is likely to remain around 3 percent for the time being."
