Koo Yun-cheol: Price controls, fuel tax cuts shaved 0.6 percentage point off inflation; exports seen topping $900b

The government said its price-stabilization measures — including a price ceiling system and fuel tax cuts — lowered May consumer price inflation by 0.6 percentage points, estimating the rate would have reached 3.7% without those steps.

On the export front, the government said South Korea could become the world's fifth country to surpass $900 billion in annual exports if current trends hold.

Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol made the remarks Tuesday during a Cabinet meeting, where he delivered a report on emergency state management and response measures related to the Middle East war.

"Through measures such as the price ceiling system and fuel tax cuts, we lowered inflation by approximately 0.6 percentage points in May," Koo said. "Had we not made these efforts, the inflation rate would have been around 3.7%."

May consumer prices rose 3.1% from a year earlier — the highest reading in two years and two months — driven largely by a 24.2% surge in petroleum product prices, the steepest increase in three years and ten months, as the Middle East war pushed up global oil prices.

On food prices, Koo said inflation in what he called "everyday food" — covering agricultural, livestock and fishery products, processed foods and dining out — stood at around 2%. He attributed the relatively contained reading to the government's crackdown on price-fixing and industry-led discounts, saying the result reflected the administration's commitment to managing the cost of living directly.

The government plans to keep up the push to stabilize prices consumers actually feel, through discount support, lower delivery prices and expanded supply. Specific steps include widening egg discounts, importing an additional 20 million fresh eggs, cutting chicken delivery prices and supporting discounts on major seafood products. The government also said it would take preemptive action against supply disruptions from summer heat waves and heavy rains.

As of May 28, about 32.4 million people had applied for the high oil price victim support fund, with 5.7 trillion won (about $3.77 billion) disbursed — representing 90.1% of eligible recipients and 93.4% of the total budget. The fuel-cost-linked subsidy rate for freight and passenger vehicles running on diesel, as well as tax-exempt fuel used in agriculture, forestry and fisheries, was raised from 50% to 70%, and the support ceiling was also expanded.

The government will also step up enforcement against price gouging and unfair practices at large-scale events, including a BTS concert in Busan. Related ministries will conduct a joint special inspection June 8-9, focusing on sanitation conditions at lodging establishments and potential price collusion. If consumer harm is confirmed, hotels will face larger deductions in their rating assessments, and the cap on reward payments for reporting unfair practices will be abolished.

In addition, the ban on hoarding and speculation in urea and urea solution will be extended through July, and the release of public stockpiles of automotive urea will continue. The policy of prioritizing raw material supply for healthcare products and daily necessities will also be maintained.

Financial market stabilization measures will run in parallel. The government plans to reduce the volume of government bond issuance in June while supporting capital inflows related to the World Government Bond Index. Foreign investors' net purchases of South Korean government bonds since late March totaled $16.85 billion, and the balance in Registered Investment Accounts stood at 2.5 trillion won as of May 28.

The Cabinet meeting also reviewed export performance. May exports rose 53.2% from a year earlier to $87.75 billion — a record monthly high and the fastest year-on-year growth rate since January 1984.

Koo said the recent export surge was not solely the result of semiconductor strength. "Not only semiconductors, but computers, shipbuilding, secondary batteries and 12 other sectors are all performing well," he said. "If current trends continue, annual exports are expected to exceed $900 billion."

He added that some are already talking about hitting $1 trillion in exports, which would firmly establish South Korea as the world's fifth-largest exporter. The Bank of Korea has also projected this year's exports will reach $952 billion.