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South Korea's Inflation Surges to Over Two-Year High in May as Fuel Costs Surge

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South Korea's Inflation Surges to Over Two-Year High in May as Fuel Costs Surge

South Korea's annual inflation rate accelerated sharply to 3.1% in May from 2.6% in April, the highest reading since March 2024, as the Middle East conflict-driven oil shock sent petroleum prices up 24.2% from a year earlier.

Analysts expected a 3% rate for the month, according to Investing.com.

On a monthly basis, consumer prices were up 0.5%, unchanged from the pace of growth between March and April.

The surge in fuel costs was the main driver behind the headline inflation reading. Gasoline prices jumped 23.1% year over year, while diesel prices rose 33.3%, pushing the wider petroleum products category to its largest annual increase since July 2022 during the Russia-Ukraine war.

Elsewhere, the prices of food and non-alcoholic beverages jumped 1.6% year over year in May, significantly faster than the 0.3% increase in April. This marked the largest jump in food prices in three months.

Meanwhile, the country's annual inflation rate excluding food and energy was 2.5%, compared with the prior reading of 2.2%. Month over month, core consumer prices inched up 0.5%, against the previous 0.3% rise.

The Middle East conflict continues to drive global energy prices, prompting the Bank of Korea to maintain its steady interest rate policy during its May meeting. The BoK kept its policy rate unchanged at 2.5%, as widely expected.

BoK Governor Shin Hyun-song on Monday said South Korea's strong economic expansion provides the central bank with the flexibility to prioritize inflation control.

Speaking at the BoK International Conference in Seoul, Shin highlighted the country's exceptional first-quarter performance, with real GDP rising 3.6% year over year.

"The growth is very strong here in Korea," Shin was quoted by Korea JoongAng Daily as saying. "First-quarter growth is super strong, especially when measured in terms of gross domestic income rather than gross domestic product."

"[Strong economic growth] poses fewer impediments to adjusting monetary policy in light of inflation," Shin reportedly said. "I think it gives us a lot more leeway to conduct monetary policy, and I think, in a very effective way, to address inflation on this occasion."

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