South Korea’s inflation eased to a three-month low in July as falling fuel prices cooled consumer costs and headline inflation came in below forecasts. However, policymakers warned that geopolitical risks and rising core inflation could keep price pressures elevated
South Korea’s consumer inflation slowed more than expected in July, helped by a sharp drop in fuel prices that pulled headline inflation to a three-month low. However, officials cautioned that lingering geopolitical risks and rising underlying price pressures could keep the fight against inflation far from over.
Consumer prices rose 2.8 per cent in July from a year earlier, easing from 3.2 per cent in June, according to data released by the Ministry of Data and Statistics on Tuesday. The reading was also below the 3.0 per cent increase forecast by economists in a Reuters poll.
On a monthly basis, the consumer price index fell 0.2 per cent, marking its first decline in eight months. Economists had expected prices to rise 0.1 per cent, matching the pace recorded in June.
Lower fuel prices offer relief
The moderation in inflation was largely driven by a decline in energy costs. Prices of petroleum products fell 5.5 per cent from the previous month as global crude oil prices retreated.
The finance ministry estimated that nationwide fuel price caps lowered July’s inflation by around 0.3 percentage points, cushioning households from higher energy costs.
Global oil prices fell to three-week lows on Monday after US President Donald Trump held off on launching a fresh strike on Iran, raising hopes that a diplomatic agreement could increase crude supplies from the Gulf and ease concerns over disruptions.
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Despite the softer inflation reading, South Korean officials cautioned that inflation risks remain.
“Upward price pressures, including uncertainty over the West Asia war, persist,” Vice Finance Minister Lee Hyoung-il said.
The finance ministry also warned that inflation could temporarily spike in August because of a base effect linked to mobile phone fee discounts introduced a year ago. It estimated the one-off factor could lift annual inflation by about 0.8 percentage points next month.
Core inflation continues to climb
The latest data comes after the Bank of Korea raised interest rates last month for the first time in three-and-a-half years and indicated that further policy tightening remains possible as the economy maintains solid growth.
While headline inflation eased, underlying price pressures strengthened. Core inflation, which excludes volatile food and energy prices, rose 2.6 per cent year-on-year in July, up from 2.5 per cent in June. It marked the fastest increase in core consumer prices since December 2023.
The combination of softer headline inflation and firmer core prices suggests the central bank is likely to remain cautious, even as lower oil prices provide temporary relief. Policymakers are expected to keep a close watch on energy markets and geopolitical developments before deciding on the next move in interest rates.
