7th oil price cap cut estimated to have lowered July inflation by 0.3 percentage points

The government's seventh round of oil price cap reductions is estimated to have lowered July consumer price inflation by about 0.3 percentage points. Without the measure, July consumer price inflation would have reached 3.1 percent, officials said.

Lee Hyeong-il, first vice minister of the Ministry of Economy and Finance, chaired a price-related vice ministerial meeting Tuesday at Government Complex Seoul. He said July consumer prices fell on a month-on-month basis for the first time in eight months, while the year-on-year inflation rate eased back to the 2 percent range for the first time in three months.

Lee said agricultural, livestock and fishery products as well as petroleum products all declined from the previous month, crediting the government's livelihood price stabilization measures — including record-scale discount support — and policy efforts such as the oil price cap reductions.

According to the July consumer price trends report released Tuesday by the Ministry of Statistics, the consumer price index stood at 119.77 last month, up 2.8 percent from a year earlier. Inflation had accelerated from 2.2 percent in March to 2.6 percent in April, 3.1 percent in May and 3.2 percent in June, partly driven by the Middle East war, before easing back to the 2 percent range last month for the first time in three months.

Petroleum product prices rose 15.5 percent last month, a smaller gain than the 24.7 percent recorded in June. Agricultural, livestock and fishery product inflation also narrowed, from 3.2 percent to 0.9 percent over the same period.

The government noted that the eurozone's July consumer price inflation, released last week, widened from 2.8 percent in June to 2.9 percent in July on the back of rising energy prices, while South Korea's inflation trend moved in the opposite direction.

However, the government cautioned that upside pressure on prices remains. Mobile phone service rates are expected to push consumer price inflation up by about 0.8 percentage points in August, due to a base effect from a one-month temporary discount on mobile phone bills in August last year.

Uncertainty stemming from the Middle East war, abnormal weather including heat waves, and the possibility of rising food prices were also identified as risk factors that could push prices higher.

Lee said that despite the easing trend, accumulated price increases have kept prices at elevated levels, leaving households under continued strain. "Upside risks to prices — including uncertainty over the Middle East war, the telecom base effect, the impact of abnormal weather such as heat waves, and food prices — remain ever-present," he said, urging all ministries to make every effort to minimize future inflationary pressure and ease the burden on people's livelihoods.

The government said it will continue operating the price cap system, designate additional "good gas stations" starting Tuesday, and work to stabilize petroleum supply and prices by ensuring uninterrupted crude oil imports and securing adequate reserve capacity.

The record-scale discount program covering all agricultural, livestock and fishery product categories, which launched in July, will continue this month, and egg and mackerel imports will also proceed without disruption.

For fishery products, the government will directly purchase and supply hairtail and squid at discounted prices if their prices rise, in addition to mackerel. It will also closely monitor supply of items sensitive to heat waves and heavy rain, such as vegetables and farmed fish. The government plans to maintain ongoing communication with the food industry and track logistics and raw material supply conditions to minimize factors driving food price increases.

The government plans to announce a "chuseok livelihood stabilization package" in September, covering measures to stabilize prices of holiday staples and ease the burden on vulnerable groups. Lee called on related ministries to cooperate actively so that people can enjoy a comfortable and plentiful holiday season without worrying about prices.