Consumer Inflation in South Korea

By Jihoon Lee

SEOUL (Reuters) – South Korea’s consumer inflation quickened in December, exceeding market expectations amid a weak local currency, although it remained lower than the central bank’s target.

The consumer price index (CPI) rose 1.9% in December compared to a year earlier, up from 1.5% in November, according to data from Statistics Korea released on Tuesday.

This marks the fastest year-on-year rise in four months, topping the median 1.7% increase forecast in a Reuters survey. However, it is still weaker than the central bank’s medium-term target of 2%.

Chun Kyu-yeon, an economist at Hana Securities, stated, “Although price pressures are being limited by sluggish domestic demand, it is necessary to keep in mind that the won’s continued weakness might pressure import prices and affect consumer prices with a time lag.”

In December, the won fell 5.2% against the dollar, suffering its biggest monthly drop in 22 months, as heightened domestic political uncertainty added to the economic drag.

Following the release of the data, the Bank of Korea indicated a possibility of inflation quickening in the coming month due to the recent weakness of the local currency. Nonetheless, it is expected to remain below 2% starting February due to weak demand-side pressures.

Last week, the central bank announced plans to lower interest rates further next year to mitigate downside risks to economic growth, following its first back-to-back rate cuts since 2009 in the last policy meeting of the year.

In 2024, the CPI is expected to rise 2.3%, after experiencing 3.6% growth in 2023, marking the slowest annual rise in four years.