South Korea’s consumer prices grew at their sharpest pace in nearly a decade in May, data from Statistics Korea showed Wednesday, feeding inflation concerns and drawing divided reactions from officials and experts.

The consumer price index gained 2.6 percent on-year in May, marking the fastest pace of growth since April 2012. The corresponding figure for April 2012 also stood at 2.6 percent.

The price index gained 2.3 percent on-year in April, which sent jitters across a market still affected by COVID-19 woes. It was the first time in more than two years the figure had surpassed the 2 percent mark.

According to a Statistics Korea official, the sharp gain in May was due to a surge in prices of agricultural, livestock and fisheries goods, affected by supply shortages and an outbreak of bird flu earlier this year. The prices gained 12.1 percent on-year, pushed up by a 45.4 percent rise in the price of eggs due to supply constraints caused by avian influenza.

Prices of petroleum products jumped 23.3 percent on-year, the sharpest rise seen since August 2008, Eo Woon-sun, a senior Statistics Korea official, told reporters. The pandemic dealt a heavy blow to the global oil industry last year as demand for oil dropped rapidly, forcing US oil prices to briefly enter negative territory for the first time on record.

Eo added that the price index was likely to continue its growth in the 2 percent range this month and in July, before stabilizing.

The May reading drew mixed responses, with some brushing the inflationary pressure off as a temporary perking up, while others are taking it as a more serious warning.

Deputy Prime Minister and Finance Minister Hong Nam-ki cited the base effect from last year’s global oil price drop and temporary supply shortages of agriculture and livestock products.

“The pressure is likely to alleviate as the economy enters the second half of the year,” Hong said on his Facebook page, adding that the price hike was only “temporary,” similar to the April reading.

But with the Bank of Korea’s current record-low interest rate of 0.5 percent, and the government’s cash handouts and financial relief programs having pumped liquidity into financial markets, the financial authorities may have to start considering a policy shift.

“The excess cash in the market has led to an increase in speculative buying of (properties),” an analyst at the Korea Capital Market Institute said.

“Overall, it is inevitable for the economy to enter a new era of inflation, as prices of raw materials are on the rise, which will affect the prices of consumer goods in the end,” he added.

The fast rebound of Asia’s fourth-largest economy, due to a recovery in exports, is likely to prompt further inflationary pressure as well, said Kim So-young, an economics professor at Seoul National University. 

The May reading places more pressure on the BOK, whose Gov. Lee Ju-yeol adopted a more hawkish stance at last month’s monetary policy meeting, toward the possibility of a rate hike by the end of the year. It now needs to cautiously choose the “right” time frame for a possible policy shift.

However, with Korea still struggling with its lackluster job market and sky-high household debt, the BOK would need to take these factors into account carefully.

“The BOK would need to consider the economic situation, including the (heated) real estate market,” said Sung Tae-yoon, an economics professor at Yonsei University.

“The nation’s low vaccination rate and other factors continue to stand in its rate hike,” he added.

Last week the BOK revised up its inflation outlook for this year to 1.8 percent from its earlier estimate of 1.3 percent. The Organization for Economic Cooperation and Development echoed the BOK’s assessment Tuesday, predicting 1.8 percent growth.

Korea’s economy is forecast to grow 4 percent this year, the BOK said recently, building up anticipation for a faster-than-expected recovery from pandemic woes. It upgraded the figure from its previous outlook of 3 percent.

By Jung Min-kyung (mkjung@heraldcorp.com)