South Korea’s Inflation Cools Even as Weak Won Stokes Import Costs

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(Bloomberg) — South Korea’s consumer inflation stayed above the central bank’s target for a fourth straight month, even as price growth cooled slightly on slower increases in food and broader living costs.

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Growth in consumer prices slowed to 2.3% in December from a year earlier, decelerating from a 2.4% pace in November, the Ministry of Data and Statistics said Wednesday. The result was in line with the median forecast of 2.3% in a Bloomberg survey of economists.

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Core inflation, which excludes volatile food and energy items, advanced at a 2% pace, matching the 2% clip in November, the data showed. Both headline and core gauges continue to hover around the Bank of Korea’s 2% target.

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The data point to easing price pressures, but the figures are not likely to prompt the BOK to resume its monetary easing cycle when authorities next set policy on Jan. 15. A persistent rally in the property market has raised concerns over growing mortgage debt levels that could lead to financial imbalances, making the central bank reluctant to add stimulus.

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Also, living costs may continue to rise. Authorities warned earlier this month that strength in food prices could help push inflation above the projected path next year even as underlying price pressure remains largely contained.

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In December, food and non-alcoholic beverage prices rose 3.6% from a year earlier, easing from November, while housing and utilities costs increased 1.3%. Prices for food and lodging gained 3%, and transportation costs climbed 3.2%.

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The slowdown was led by easing costs for telecommunication, alcoholic beverages and tobacco products. Policymakers remain wary of upside risks from the weak Korean won, which could feed through to prices for imported goods in a country heavily reliant on overseas supplies of food and energy.

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Broader consumer-price gains remained modest in the latest month, with education costs rising 1.6% and recreation and culture gaining 1.2%, both slower than the previous month.

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Still, apartment prices in Seoul extended their gains for a 47th straight week as of Dec. 22, according to the Korea Real Estate Board, reinforcing the BOK’s concern that rate cuts could fuel financial imbalances.

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The BOK held its benchmark rate steady at 2.5% in late November while also slightly increasing its growth and inflation outlooks. Authorities also removed a reference in the statement to maintaining a rate-cut stance, prompting some economists to speculate that the easing cycle might have run its course.

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Officials are keeping their options open. The bank said last week that it will keep the door open to further cuts next year, while also increasing vigilance over financial stability risks from foreign-exchange and housing markets.

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What Bloomberg Economics Says…

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“We expect CPI to stay elevated in the near term as a weaker won lifts import costs and keeps underlying pressures firm. That sticky inflation backdrop reinforces our view that the BOK will look past the recent soft patch in factory production and keep the policy rate steady at 2.5%.”

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— Hyosung Kwon, economist

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Click here to read the full report

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Inflation is expected to remain anchored around the target, but the BOK warned in a statement for monetary policy in 2026 that upside pressures could prove stronger than anticipated, citing weakness in the won and a recovery in local consumption.

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Buoyant stock prices and the persistent property market rally have supported consumer sentiment for most of the year, with a gauge of confidence staying well above the neutral level for an eighth straight month in December.

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(Updates with a chart and details in 8th paragraph.)

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