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| A senior Statistics Korea official gives a press briefing on consumer prices in February at Government Complex Sejong, Monday. Yonhap |
Rising utility costs pose biggest hurdle for gov't in fighting inflation
By Yi Whan-woo
Consumer prices in Korea eased to the 4-percent level for the first time in 10 months in February, raising hopes that inflation will cool down further to the government's 2023 target of the mid-3 percent range.
But Korea continues to face obstacles in its efforts to curb inflation, as the growth of utility costs reached an all-time high of 28.4 percent, while core inflation ― a gauge of long-term price trends ― climbed 4 percent.
According to Statistics Korea, Monday, consumer prices rose 4.8 percent last month from a year earlier, after hovering at around 5 percent since May 2022.
Inflation falling to a 10-month low is in line with the Ministry of Economy and Finance's forecast that consumer prices, after reaching a 24-year-high of 5.1 percent for all of 2022, will fall to the 4-percent range within the first half of 2023 before slowing down to the government's target of 3.5 percent in the second half of this year.
The Bank of Korea (BOK) also forecast 2023 inflation at 3.6 percent.
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"Inflation is anticipated to become remarkably stable over time, unless there are external shocks," the finance ministry said.
It noted that food and service sectors in the future can be adversely affected by possible hikes in global energy and raw material prices due to the prolonged war in Ukraine.
In a separate announcement, the BOK said inflation in February matches the projection of its monetary policy board last month when it ended a tightening cycle ― which continued since August 2021 ― and froze the benchmark interest rate at 3.5 percent.
"Consumer prices in March are likely to fall significantly due to a much-anticipated base effect linked to global oil prices, although the situation concerning energy prices can change and heighten economic uncertainties," the central bank said.
But some analysts were skeptical about a slowdown in inflation over the short term.
"Utility costs went up to an unpreceded level last month. And they can go up higher because it will be a matter of time before additional price hike plans take effect," said Lee Sang-ho, head of the economic policy team at the Korea Economic Research Institute (KERI).
The prices of electricity, gas and water combined increased 28.4 percent year-on-year in February, which was the highest since Statistics Korea began compiling relevant data.
The Ministry of Trade, Industry and Energy has been holding off on plans for further hikes to minimize the impact on the public's livelihood. But the plans cannot be delayed too long, because the balance sheets of already debt-ridden state-run energy firms will get worse.
Speaking on condition of anonymity, a researcher at a state-run think tank pointed out that core inflation, which excludes volatile food and energy prices, rose 4 percent in February compared to a 4.1 percent increase in January.
"Core inflation indicates the long-term trend in inflation and February's reading shows inflation has not eased to a stable level at the moment," he said.
Meanwhile, the prices of industrial products increased 5.1 percent year-on-year and the prices of agricultural, fisheries and livestock products rose 1.1 percent year-on-year.
The prices of personal services increased 3.8 percent year-on-year, while those of gasoline and computers fell 7.6 percent and 6 percent from a year earlier, respectively.
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