[Editorial] Inflation Rises 3% Amid Global Tightening—The Outlook Is Even More Troubling

The consumer price inflation rate rose back into the 3% range in August after two months. A major factor was the base effect from SK Telecom (SKT)’s decision last year to cut telecommunications fees by 50% for one month as compensation for a hacking incident. The Ministry of Data and Statistics analyzed that this effect raised the inflation rate by 0.58 percentage points, and that the rate would have been around 2.5% excluding it.
There is no need to make a fuss and claim that prices have surged again based solely on the figures. But this is by no means a situation for complacency. Core inflation, excluding food and energy, soared to 3.4%, its highest level in three years and three months. The base effect from the telecommunications fee reduction also played a role, but even after removing it, it is difficult to say that underlying price pressures are low.
Core inflation rose to 2.6% in July after recording 2.5% in May and June. The 2.6% core inflation rate was the highest since December 2023. Core inflation in August follows the same trend. In particular, price increases for personal services and durable goods remain high. This is why the Bank of Korea (BOK) forecast that underlying inflation would continue, particularly among core items, even after September.
Growing inflationary pressures overseas are another source of concern. As the Middle East war appears to be expanding, international oil prices are rising sharply again. As higher oil prices fuel concerns about inflation, government bond yields in the United States, Japan, and other countries have surged in tandem. The possibility of additional rate hikes by major economies is also increasing. South Korea, which relies heavily on imports of crude oil and raw materials, could see import prices rise again as exchange-rate effects add to the pressure. The country must prepare in advance for the possibility that inflationary shocks from abroad will spread to domestic transportation and production costs, as well as restaurant and service prices.
The oil price cap needs an exit strategy so it can eventually be ended. While it has played some role in containing inflation, keeping prices artificially restrained indefinitely will inevitably cause various side effects. Under the price cap, the government compensates refiners for their losses. Ultimately, that cost is passed on to the public. The policy reduces companies’ incentive to cut costs and even distorts the market’s pricing function. Rather than simply suppressing prices, the response to high oil prices should focus on stabilizing supply chains and lowering energy costs.
The same applies to prices of everyday necessities. Ahead of Chuseok, the government says it will support discounts and take other measures to stabilize prices of agricultural, livestock, fishery products, and other major holiday goods. This may ease the immediate burden on consumers’ shopping baskets. However, repeatedly releasing supplies and providing discount coupons has clear limitations. There are many unnecessary distribution stages between producer and consumer prices, and critics have repeatedly pointed out that these processes create price bubbles. The government should take another close look at whether excessive margins or unfair trading practices remain in the wholesale and retail process.
The government has introduced countless measures to improve the distribution structure. It is time to thoroughly examine whether these policies are actually working in the field. Outdated distribution practices and entrenched abuses that hinder competition should be removed decisively, while distribution networks that directly connect producers with consumers and new logistics systems should be promoted. Unlike temporary price suppression, distribution reform that reduces these structural costs is the way to lower prices as experienced by consumers.