South Korea expects consumer inflation to average around 2.7% this year, with elevated energy costs stemming from the prolonged Middle East conflict remaining the biggest threat to price stability.
Government officials said fuel-price controls and temporary tax cuts have helped shield consumers from the full impact of higher crude oil prices, though those measures could be unwound if global energy markets stabilize.
The assessment followed a meeting of a government task force on consumer prices held on August 4, where officials reviewed recent inflation trends and discussed additional measures to contain living-cost pressures.
Consumer prices rose 3.1% in May from a year earlier, the fastest pace in 26 months, driven largely by higher petroleum prices, according to the Finance Ministry. Officials estimated that the fuel-price cap and fuel-tax reductions lowered inflation by roughly 0.6 percentage point. Without those measures, inflation would have reached 3.7%, the ministry said.
The government signaled that any decision to remove the fuel-price cap would depend on developments in global oil markets and geopolitical conditions. Policymakers are closely monitoring whether shipping flows through the Strait of Hormuz continue to normalize and whether crude prices settle into a more sustainable range.
Officials said they are also weighing how any exit should be structured, including whether support measures should be phased out gradually and whether temporary fuel-tax reductions should be maintained or restored to previous levels.
To address losses incurred by refiners under the price-control program, the government plans to establish a settlement committee this month and develop formal compensation guidelines.
Additional incentives are being considered for gas stations that contribute to price stabilization efforts. Authorities also plan to accelerate fuel-related support payments for low-income households, truck operators, farmers and fishermen affected by higher energy costs.
While officials cautioned that the inflation outlook remains highly dependent on oil prices, they said current conditions suggest price growth is unlikely to move far from recent levels if the geopolitical standoff persists.
Consumer sentiment improved in May after weakening earlier in the spring, though policymakers said stronger demand has yet to generate meaningful inflationary pressure. They added that sustained gains in consumer spending could become a factor later in the year.
Officials indicated that the government’s annual inflation forecast, scheduled for release later this month as part of its second-half economic strategy, is unlikely to differ significantly from the Bank of Korea’s 2.7% projection. Consumer prices increased an average of 2.4% during the first five months of the year.
The government is also expanding measures aimed at easing pressure on household food budgets. Tariff-free import quotas for pork and chicken are set to increase, while additional emergency tariff reductions for the second half of the year are under review.
Authorities will expand discounts on agricultural, livestock and seafood products, increase imports of fresh eggs from the U.S. and Thailand, and release about 8,800 short tons of government stockpiles of pollock, mackerel and other seafood products at discounts of 30% to 40% below retail prices.
Prices of agricultural and seafood products rose 2.2% in May after declining in March and April, while inflation in processed foods slowed to 0.8%.
To guard against supply disruptions during the summer, the government plans to launch a special monitoring team on August 15 focused on agricultural and livestock markets vulnerable to extreme heat and heavy rainfall.
