Korea Inflation Stays High, Keeps Pressure on Central Bank


South Korean consumer prices stayed well above the Bank of Korea’s target in January, keeping the pressure on policy makers to keep tightening as central banks around the world move to tamp down inflation.

Consumer prices rose 3.6% from a year earlier, edging down from a 3.7% gain in December, according to data Friday from the statistics office that ran hotter than economists had expected.

Korean inflation has held above 3% since October, well in excess of the BOK’s 2% target, suggesting that three rate hikes since August have so far failed to cool momentum in the nation’s consumer prices that is part of a global wave. 

European Central Bank President Christine Lagarde on Thursday said it’s no longer sensible to exclude a rate move this year, while the Bank of England hiked for a second meeting in a row to contain the fastest inflation in three decades. 

Lagarde Pivots on ECB Hikes as Switch in Guidance Seen Soon

Still, most economists don’t see another increase from the BOK this month, the last meeting before Governor Lee Ju-yeol steps down and as the nation heads into a presidential election.

“This doesn’t mean the BOK will hike its rate again this month, after having moved in January,”strategist Roh Hyun-woo at Hanwha Asset Management said of Korea’s inflation figures. “It’s part of a global upswing in consumer prices that you can feel for yourself when you’re at stores.”

What Bloomberg Economics Says…

“South Korea’s inflation cooled a little in January and looks set to slow further. But it probably won’t drop back to around the Bank of Korea’s 2% target until the third quarter. We expect the BOK to pause and take stock of its quick 75 basis points of rate hikes since August, and resume tightening in the second half of 2022.”

–Justin Jimenez, economist

While monetary easing from the BOK and other central banks helped support the economy during the pandemic, the policy has also fueled asset bubbles and price gains that analysts warn could damp longer-term economic growth. 

Minutes from the BOK’s January meeting released Thursday show board members calling for more vigilance on inflation, with one calling for a “pre-emptive response.”

Friday’s report also showed:

  • Consumer prices excluding costs for oil and agricultural goods rose 3%, the highest reading in 10 years for so-called core inflation
  • Overall consumer prices rose 0.6% compared with December
  • Transportation costs slipped 0.3% from a month earlier, but jumped 7.2% year-on-year. Food and beverage prices increased 5.5% from a year earlier, while utility costs rose 3.3%.

The BOK holds its next rate decision on Feb. 24, the last meeting before Lee steps down in March and voters go to the polls to pick a new president.