The Korean won remains underperforming within the Asian region

South Korea’s consumer inflation has slowed to a level matching the central bank’s target, driven by declining fuel costs and comparisons with last year’s higher prices. 

Following this finding, analysts conducted research and discovered that consumer prices in January surged by 2% compared to the same month last year. Moreover, they revealed that this percentage reflects a decline from the 2.3% record set in December, citing data from the Ministry of Data and Statistics retrieved on Tuesday, February 3.

A report from a reliable source highlighted that this figure is consistent with what economists surveyed had forecasted. In the meantime, analysts noted that the Lunar New Year holidays in January 2025 raised prices and set a challenging benchmark for future comparisons. This year, such holidays are in February.

On the other hand, reports disclosed that core inflation, which excludes volatile energy and food prices, also rose steadily by 2%, similar to the previous month. As a result, both consumer inflation and core inflation are currently at the Bank of Korea’s 2% target. Apart from this, sources mentioned that this downward trend in inflation reinforces recent signals from the Bank of Korea (BOK).

The Korean won remains underperforming within the Asian region

The central bank decided to keep its benchmark interest rate unchanged at 2.5% in January. It also omitted any suggestions of potential further cuts, proposing that the bank’s officials might consider maintaining their rate steady for an extended period.

Following this move, Jeeho Yoon, a senior economist at BNP Paribas, commented that, “The increase in services inflation was normal for this time of year, while commodity prices remained stable due to steady food and oil product costs.”

Looking ahead, Yoon forecasts an increase in the annual headline Consumer Price Index (CPI) of 2.1% in 2026, with upward pressure on rates driven by the US dollar’s impact on the Korean won and global oil prices.

Meanwhile, Hyosung Kwon, a well-regarded economist and market analyst, popular for his specialization in the South Korean and Taiwanese economies, also weighed in on the matter. 

He mentioned that, “Reducing price pressure is unlikely to change the direction of policy. Policymakers are still paying close attention to high foreign exchange market volatility and ongoing risks to financial stability linked to rising home prices in the Seoul area. According to our baseline forecast, the Bank of Korea (BOK) will keep the base rate steady at 2.5% until 2026.” 

Nonetheless, policymakers issued a warning arguing that higher foreign-exchange volatility could swiftly drive up import prices and complicate the inflation outlook. Despite recent gains, the Korean won remains underperforming in Asia, having declined approximately 7% since mid-last year.

South Korea’s households face challenges amid food price hikes 

Lee Hyoung-il, the first Vice Minister of Economy and Finance in South Korea, noted that high food prices continue to hit households hard. Following this finding, the vice minister urged officials to get ready for a surge in demand for holiday essentials during the Lunar New Year and potential weather-related disruptions.

Additionally, he emphasized the importance of carefully monitoring local fuel prices and related supply issues amid heightened instability in global oil markets.

In the meantime, food and non-alcoholic beverage prices rose by 2.9% year over year in January. On the other hand, food and lodging costs increased by 2.8%. At the same time, housing and utility expenses surged by 1.3% and transportation costs rose by 1.1%, indicating slower increases in gas prices.

At this particular moment, the overall rise in consumer prices remained modest, with communication costs rising by 0.4% and recreation and culture by 0.9%, both higher than December’s figures.

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