Do Surging Vegetable Prices Signal Agflation?

The Bank of Korea warned of the potential for agflation Monday as consumer inflation rose for the eighth straight month last month led by a surge in vegetable prices.

With the recent hike in international grain prices likely to be reflected in domestic market prices, inflationary pressure is expected to grow in the second half. Analysts say higher producer prices are a prelude to inflation as they gradually lead to higher consumer prices.

The central bank said the July producer price index was 114.9, up 3.4 percent year-on-year. The figure was lower than that of May or June but still saw its eighth consecutive month of rise since December last year.

Leading the surge was vegetable prices with an increase of 33.8 percent. Produce that showed a sharp price increase included radishes (175.6 percent), garlic (151.6 percent), Chinese cabbage (94.6 percent), onions (49.4 percent), spinach (41.1 percent) and tomatoes (38.8 percent). The prices of seasonal fruit such as melons and watermelons also jumped, leading to an overall hike of 10.2 percent in fruit prices.

The bank said the recent surge in international grain prices will be reflected on domestic consumer prices, potentially leading to agflation.

“The hike in international grain prices will surely cause domestic consumer prices to rise over time, though when and how much the prices will increase remain uncertain,” a bank official said.

achim@donga.com