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S. Korea Inflation Dips but Stays Stubbornly High
1 Jan
Summary
- December inflation eased to 2.3%, slightly down from November's rate.
- Higher oil prices due to a strong dollar impacted December's inflation.
- Bank of Korea forecasts 2.1% average inflation for 2026.
South Korea experienced a slight decrease in its headline inflation rate for December, settling at 2.3% year-over-year. This marks the fourth consecutive month inflation has exceeded the Bank of Korea's 2% target, with the December figure matching economic forecasts. The month-over-month increase was also 0.3%, contrasting with a slight decrease in November.
The primary driver for December's price growth was attributed to increased oil product costs, exacerbated by the strengthening U.S. dollar against the South Korean won. Core inflation, excluding volatile food and energy prices, showed a more stable trend, rising 2.0% annually and 0.2% monthly. This suggests underlying price pressures remain a concern for policymakers.
The Bank of Korea projects an average inflation rate of 2.1% for 2026, anticipating relief from potentially lower oil prices. However, the central bank cautioned that persistent won weakness against the dollar could escalate import costs and push inflation beyond this forecast. Recent interventions by financial authorities have helped the won recover some ground, offering a degree of stability.
