Reporter Park Gwang-beom from Silver Today | 2023.06.19 14:00
Although the rate of increase in consumer prices has been somewhat subdued this year, the pace of the slowdown in the core inflation rate is still slow. In particular, it was analyzed that the core inflation rate was still recorded in the medium range of 4%, excluding ‘controlled prices’ such as public utility charges, which the government influences on price decisions. According to the report entitled “Inspection on the Implementation of the Inflation Target” released by the Bank of Korea on the 19th, the core inflation rate between January and May this year was 4%, slightly lower than the second half of last year ( 4.1%) . This compares to the rate of increase in consumer prices, which slowed significantly from 5.6% to 4.2% over the same period.
Core inflation refers to prices that do not include agricultural products that are affected by seasonal factors or petroleum products whose prices fluctuate rapidly due to temporary external shocks.
Core inflation has been higher than consumer price inflation since last April. Compared to the same period last year, consumer price inflation fell to 3.7% and 3.3% in April and May, respectively, while core inflation recorded 4% and 3.9% during the same period .
The Bank of Korea analyzed that the slowdown in the core inflation rate was a result of favorable service demand, employment flows, and the continuation of the ripple effect of accumulated cost increase pressure.
In particular, if controlled prices, which are controlled by the government, are excluded, core inflation is still maintained at the mid-4% level. This means that without government controlled inflation, inflation would have risen even more.
Regulated prices are calculated by the government by collecting 46 items that directly or indirectly affect price determination. It includes utility bills such as electricity, city gas, and water, as well as cell phone bills, real estate brokerage fees, and insurance premiums.
However, as utility rates such as electricity and city gas and public transport rates such as buses and subways are set to increase in the second half of the year, overall core pressures and consumer price inflation are expected to increase.
In the case of Seoul, city bus fares are expected to rise by 150 won during the second half of the year. There is also the possibility of a 150 increase in subway fares. Taxi fares in Busan, Gwangju, and Incheon will increase by 700 to 1,000 won.
The Bank of Korea said, “In the second half of the year, increases in public transport fares and the end of individual consumption tax cuts for automobiles are expected to put upward pressure on prices.” he said.
Meanwhile, the BOK predicted that consumer price inflation would show a clear slowdown by the middle of this year and fall to the 2% level due to the base effect. After that, it is expected to rebound and show a level of around 3% by the end of the year. This is because oil prices rose sharply in June last year and then fell again in August.
It is analyzed that the slowdown in consumer price inflation during the first half of this year was mainly influenced by the price of petroleum products. In fact, the contribution of petroleum prices to consumer price inflation has shrunk significantly from 0.72%p (point) in the second half of last year to -0.5%p between January and May this year.
Core inflation is expected to continue its decelerating trend relative to consumer prices. This is because service utilization and employment conditions continue to show favorable trends compared to past periods of inflation, and the ripple effect of accumulated cost pressures on core prices continues.
The Bank of Korea said, “Amid great uncertainty about future price trends, an inflation trend above the target level (2%) is expected to continue for a significant period of time.” We need to look carefully,” he said.
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