South Korea’s inflation picks up, backing case for BOK rate hold
The won is the second-weakest performing Asian currency versus the US dollar since Oct 1
[SEOUL] South Korea’s consumer inflation quickened in October as a weaker won lifted energy and food costs, reinforcing the case for the central bank to extend the pause in its monetary easing cycle as it seeks to cool a housing market rally.
Consumer prices advanced 2.4 per cent from a year earlier, accelerating from a 2.1 per cent gain in September, the Ministry of Data and Statistics said on Tuesday (Nov 4). The pace, which exceeded the median forecast of 2.2 per cent in a Bloomberg survey of economists, was the fastest since July 2024, when prices jumped by 2.6 per cent.
Core inflation, which strips out volatile food and energy items, picked up to a 2.2 per cent clip from 2 per cent in September, the data showed. Both headline and core gauges are now hovering above the Bank of Korea’s (BOK) 2 per cent target.
The latest inflation reading comes at a delicate time for the BOK, which has held its key rate steady for the past three meetings. While price pressures have eased in recent months, concerns over asset bubbles and financial stability risks linked to household debt have kept policymakers from resuming the rate-cutting cycle that began in October last year.
That limits the central bank’s options as it gauges the potential impact from 15 per cent US tariffs on South Korean goods. The BOK estimates the measures will shave 0.45 percentage point off growth this year and 0.6 point in 2026.
The uptick in October inflation was largely driven by a nearly 1.9 per cent slide in the won against the US dollar last month, pushing up import prices for energy and food. The currency fell to its weakest level since March. The won is the second-weakest performing Asian currency versus the US dollar since Oct 1.
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Fuel costs also climbed after the government partially rolled back fuel tax subsidies in October, adding to upward pressure on petrol prices. Meanwhile, apartment prices in Seoul extended their streak of gains for a 39th straight week as of Oct 27, according to the Korea Real Estate Board.
Food and non-alcoholic beverage prices climbed 3.5 per cent in October from a year earlier, while housing and utilities costs rose 1.2 per cent. Prices for food and lodging gained 3.2 per cent and transportation costs also increased 3.4 per cent.
Economists are divided over whether the BOK will lower rates at its final policy meeting of the year on Nov 27 as policymakers weigh whether housing prices in the capital region stabilised.
The inflation data come on the heels of stronger-than-expected growth for the third quarter, supported by resilient exports and domestic spending. Gross domestic product expanded 1.2 per cent from the previous quarter, beating the estimate of 1 per cent growth.
Private consumption rose 1.3 per cent, fuelled by two rounds of cash handouts under the government’s extra budget of more than US$20 billion, with spending on both goods and services increasing, the central bank said last week. BLOOMBERG
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