South Korea”s consumer prices climbed 2.3% year-on-year in December, according to the Ministry of Data and Statistics. This figure represents a slight deceleration from the previous month”s inflation rate of 2.4%, yet it remains above the Bank of Korea”s (BOK) target of 2%, marking the fourth consecutive month of elevated inflation.
The core inflation rate, which excludes the volatile prices of food and energy, also maintained a steady increase of 2%, mirroring the November rate. Analysts are cautiously optimistic, citing a potential easing of price pressures; however, these inflation figures might not compel the BOK to revisit its monetary easing policies during the upcoming board meeting on January 15.
In the context of the current economic landscape, the property market”s resilience has sparked concerns regarding soaring mortgage debt levels. This situation could lead to financial instability, prompting the central bank to tread carefully when considering additional stimulus measures.
Furthermore, there is considerable apprehension about the rising cost of living. Officials have warned that persistently high food prices could push inflation rates higher than anticipated by 2026, despite generally stable basic price pressures.
A recent report highlighted a significant rise in the prices of food and non-alcoholic beverages, which surged by approximately 3.6% compared to the previous year. In contrast, housing and utility costs experienced a notable decline of 3%, while transportation expenses escalated by 3.2%. This decline is largely attributed to falling prices in telecommunications, alcoholic beverages, and tobacco products.
In response to the ongoing economic challenges, policymakers have acknowledged the current weakness of the South Korean won. They have committed to closely monitoring the risks associated with this weakness, especially regarding potential price increases for imported goods, given the nation”s heavy reliance on foreign food and energy supplies.
Despite moderate consumer price increases in November, education costs soared by about 1.6%, and recreation and culture expenses rose by approximately 1.2%, both showing slower growth than in previous months. Meanwhile, apartment prices in Seoul have continued to rise, marking the 47th consecutive week of increases as of December 22, igniting further concerns among central bank officials about the implications of potential interest rate reductions.
In late November, the BOK decided to maintain its key interest rate at 2.5% while slightly adjusting its growth and inflation forecasts upward. The bank also removed language that suggested consideration of future rate cuts, leading economists to speculate that the cycle of rate easing may be coming to an end.
Officials have indicated that they are exploring various strategies to address financial stability issues stemming from foreign exchange and housing market vulnerabilities. Economist Hyosung Kwon stated, “We think CPI will stay high for a while because a weaker won raises import costs and keeps underlying pressures strong. This ongoing inflation situation supports our belief that the BOK will overlook the recent dip in factory production and maintain the policy rate at 2.5%.”
