SEOUL, April 2: South Korea's inflation increased less than expected in March as the government implemented nationwide fuel price caps for the first time in nearly 30 years. The consumer price index rose 2.2% year-over-year, higher than February's 2.0%, but lower than economists' median forecast of 2.4%. On a monthly basis, the index rose 0.3%, matching February's pace and falling short of expectations.
The Bank of Korea noted that fuel price caps significantly limited petroleum product price increases, though these products still surged 10.4% month-over-month. Agricultural prices fell 3.0% due to increased supply. Core inflation, excluding volatile food and energy prices, was at 2.2% in March, down from 2.3% in February.
Economist Stephen Lee from Meritz Securities warned that while an immediate rate hike is unlikely after this data, policymakers must remain vigilant due to ongoing oil price pressures. He noted that even stable fuel prices could push annual inflation above 2.5%, necessitating upward revisions to forecasts. Rising airfare and fertilizer costs are also squeezing agricultural prices.
This data comes ahead of the Bank of Korea's policy meeting on April 10. In February, the central bank held rates steady, projecting 2.1% inflation based on $64-per-barrel oil prices, assumptions now challenged by the Iran war and subsequent oil price spikes.