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South Korea Inflation Hits Central Bank Target
3 Feb
Summary
- Consumer inflation in South Korea reached 2% in January.
- Core inflation also stood at 2%, meeting the central bank's target.
- The Korean won remains volatile, posing risks to import prices.
South Korea's consumer inflation decelerated to 2% in January from 2.3% in December, aligning precisely with the central bank's target and market consensus. This cooling trend is attributed to lower fuel costs and favorable year-on-year comparisons. The core inflation rate, excluding food and energy, also held steady at 2%, reinforcing the Bank of Korea's (BOK) neutral monetary policy stance.
The BOK maintained its benchmark interest rate at 2.5% last month, signaling a shift towards a more neutral bias. However, concerns persist regarding the Korean won's significant depreciation, which has fallen approximately 7% since the second half of last year. This currency weakness poses a risk, potentially driving up import costs and complicating the inflation outlook.
Looking ahead, inflation is projected to remain near 2%, supported by declining crude oil prices and a higher base effect. Nevertheless, the weak won presents an upside risk. With inflation potentially resurfacing and economic growth strengthening due to robust global demand for semiconductors, the BOK is expected to hold its policy rate at 2.5% throughout 2026.
