Consumer prices jump 3.1%, highest in over 2 years

South Korea's consumer prices rose 3.1 percent in May, the highest reading in two years and two months, as surging global oil prices driven by the Middle East war sent petroleum costs to their steepest climb in nearly four years. The lifestyle price index also posted its largest gain in over two years, and the acceleration is expected to intensify debate over a benchmark interest rate hike.

The consumer price index stood at 119.92 (base year 2020=100) in May, up 3.1 percent from a year earlier, according to data released by the Ministry of Statistics on Tuesday. It is the first time consumer price inflation has exceeded 3 percent since March 2024, when it also came in at 3.1 percent. After holding steady at 2.0 percent in both January and February this year, inflation edged up to 2.2 percent in March and 2.6 percent in April before jumping 0.5 percentage point within a month to cross back above 3 percent.

The surge in global oil prices driven by the Middle East war dealt the most direct blow to overall inflation.

Petroleum prices climbed 24.2 percent, pushing the overall index up by 0.92 percentage point. The gain was the largest since July 2022 — the early months of the Russia-Ukraine war — when petroleum prices rose 35.2 percent.

Gasoline prices rose 23.1 percent and diesel 33.3 percent, both the largest increases since July 2022, while kerosene climbed 21.7 percent, its steepest rise since February 2023.

The ripple effects of higher oil prices spread to travel and accommodation services. Overseas group tour costs rose 26.3 percent and domestic airfares 25.9 percent, driven by the May holiday period and higher fuel surcharges. Transportation was the fastest-rising expenditure category, up 11.6 percent. International airfares surged 33.5 percent — the highest increase since the relevant statistics were first compiled in 1995.

Service prices also continued to rise. Overall service prices were up 2.8 percent year-on-year, while personal services gained 3.7 percent. Personal services excluding dining out rose 4.4 percent, accelerating from 3.5 percent the previous month. Dining-out prices held steady at 2.6 percent, unchanged from April.

Agricultural, livestock and fishery prices rose 2.2 percent, reversing three months of declines. Rice climbed 13.5 percent, eggs 10.2 percent and hairtail fish 15.1 percent. The Ministry of Statistics attributed the gains to a base effect from last year on top of reduced output caused by recent high temperatures. Some vegetables and fruits fell, including radishes (down 27.5 percent), pears (down 17.8 percent), onions (down 18.5 percent) and cabbage (down 43.9 percent).

Lee Du-won, a senior statistics official at the Ministry of Statistics, said the impact of the Middle East war did not yet appear to have spread broadly to other sectors, noting that the pace of gains in processed food prices had slowed and agricultural price movements remained mixed. "Given the supply-side lag, however, this will need to be watched closely in the second half of the year," he added.

The lifestyle price index, which tracks items purchased frequently by consumers, rose 3.3 percent year-on-year — the highest since April 2024, when it stood at 3.6 percent. Food prices rose 2.1 percent, while non-food items climbed 4.2 percent.

The lifestyle price index including jeonse and monthly rent rose 3.0 percent from a year earlier. Core inflation gauges — the index excluding food and energy, and the index excluding agricultural products and petroleum — both rose 2.5 percent year-on-year.

With consumer price inflation running well above the Bank of Korea's 2 percent price stability target, pressure on monetary policy is mounting. The lifestyle price index reaching 3.3 percent — a level consumers feel directly — is expected to accelerate discussions about raising the benchmark interest rate.

Bank of Korea Gov. Shin Hyun-song said at the Monetary Policy Board meeting on May 28 that the lifestyle price index "can be assumed to have the most direct influence on inflation expectations," noting it had stood at 2.9 percent in April. The remark was widely interpreted as a signal that rising lifestyle costs could stoke household inflation expectations.

Experts warned that if the current price pressures spread beyond the oil shock to processed foods, dining out and petrochemical products, inflation could persist longer than anticipated.

Yang Jun-seok, a professor of economics at Catholic University of Korea, said the sharp rise in oil prices had driven inflation higher, though price caps and similar measures had limited the increase to some extent. "Even so, the fact that consumer price inflation has exceeded 3 percent is a signal that cannot be taken lightly," he said.

He added that while international oil prices had shown some signs of stabilizing after the third week of May, petrochemical product prices tend to reflect oil costs with a lag, meaning further price increases cannot be ruled out. Higher fertilizer costs could also feed through to agricultural and food prices, he said.

Rising energy prices are pushing up production costs in manufacturing and transportation, while the service sector faces growing pressure from higher labor and operating expenses. If those cost increases are passed on to consumers, a second round of inflation becomes difficult to rule out. Analysts also cautioned that with domestic demand recovery already lagging despite strong exports, consumer and investment sentiment could weaken further.

Kim Jeong-sik, an emeritus professor of economics at Yonsei University, said producer price gains recorded in April were likely to pass through to consumer prices in the coming months, and that this year's consumer price inflation could exceed the Bank of Korea's forecast of 2.7 percent. "If inflation persists, the burden on monetary policy will grow, and that could lead to a slowdown in domestic demand, heavier household interest burdens and rising delinquency rates," he said.