SEOUL, June 02 (AJP) - South Korea's inflation accelerated by the fastest pace in 26 months to run above 3 percent in May as energy shocks from prolonged Gulf conflicts pushed up prices from fueling to service charges coupled with crisis-level exchange rate to rock capital markets and send the central bank scrambling for emergency actions.
The composite consumer price index for May rose 3.1 percent from a year earlier, according to the Ministry of Data and Statistics on Tuesday. The annual inflation rate accelerated from 2.6 percent in April and marked the fastest pace since March 2024.
Petroleum products were the main driver of the May pickup, rising 24.2 percent on year. Diesel prices jumped 33.3 percent, while gasoline climbed 23.1 percent.
In May, the average retail price of gasoline at gas stations in Seoul stood at 2,051.1 won ($1.38) per liter, while diesel recorded 2,038.85 won per liter. The figures represent expansions of 1.46 percent and 1.66 percent, respectively, compared to April's averages of 2,021.6 won and 2,005.46 won when government capped the gains.
The impact was most visible in transport costs, which rose 11.6 percent from a year earlier. Recreation and entertaining prices also increased 5.0 percent, while miscellaneous goods and services rose 4.1 percent.
An index measuring the prices of daily necessities rose 3.3 percent, the highest level since April 2024, suggesting that households continued to feel the pressure of rising prices.
The burden was concentrated more in non-food items, as the non-food component of the living necessities index climbed 4.2 percent while non-food items showed a rather modest rise of 2.1 percent.
Fresh food prices, by contrast, fell 1.4 percent from a year earlier, with fresh vegetables and fresh fruit declining 4.9 percent and 2.8 percent, respectively. Agricultural, livestock and fishery products still rose 2.2 percent overall, as livestock and fishery prices increased despite relatively stable agricultural prices.
Service prices rose 2.8 percent from a year earlier, led by travel-related items such as domestic and international airfares. Personal services increased 3.7 percent, while personal services excluding dining out climbed 4.4 percent.
As of the end of the morning session, the three-year government bond yield rose 3.3 basis points to 3.823 percent, while the 10-year yield edged down 0.7 basis points to 4.167 percent.
The longer-dated yields remained largely flat, benefiting from the spillover effects of a 3 trillion won auction for 30-year government bonds scheduled for the day.
The benchmark KOSPI fell more than 2 percent while the dollar spiked above 1,518 won.
The Bank of Korea also held an inflation review meeting Tuesday morning, chaired by Lee Ji-ho, Head of Research Department, to assess recent price conditions and the outlook.
The Bank of Korea in late May held the benchmark at 2.5 percent, unchanged for a full year, while clearly indicating rates would go higher possibly through multiple hikes depending on the inflationary trajectory. The next meeting is in July, but the monetary policy board can hold emergency rate-setting meetings.
Lee said May inflation rose sharply from April as the pace of petroleum price increases widened and service price growth picked up, particularly in travel-related services such as domestic and international airfares.
The central bank said most major categories acted as upward factors in May, with services, agricultural, livestock and fishery products, and petroleum products all contributing to the acceleration in headline inflation.
The BOK also warned that inflation is likely to remain around 3 percent as the impact of oil price shocks gradually spreads to other sectors. Last month, it upped this year's inflation forecast to near 3 percent.
"As oil price shocks are gradually spreading to other sectors, inflation is expected to remain in the 3 percent range for the time being, and we will closely monitor price conditions with vigilance."
The central bank also noted that the rise in living necessities prices to the low-to-mid 3 percent range has increased living cost burdens for vulnerable groups, whose spending is more heavily concentrated on essential goods.
The latest inflation data came a day after BOK Governor Shin Hyun-song said Korea remains vulnerable to energy price shocks but has room to respond to renewed inflation pressure.
"Korea is sensitive to energy price shocks, similar to the euro area," Shin said Monday during a policy dialogue at the 2026 BOK International Conference in Seoul.
He added that there are fewer obstacles to adjusting monetary policy in relation to inflation, saying the central bank has "greater room for maneuver" to ease price pressures with potential rate hikes.
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