South Korea’s Inflation Picks Up, Backing Case for BOK Rate Hold

A customer pays his purchase with South Korean 1,000 won banknotes at the Cheongyangni Market in Seoul, South Korea, on Friday, Sept. 13, 2024. South Korea's inflation slowed more than expected to the central bank's target, opening the door for monetary officials to conduct a policy pivot as soon as next month if home prices also show signs of easing. Photo by SeongJoon Cho /Bloomberg

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(Bloomberg) — 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.

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Consumer prices advanced 2.4% from a year earlier, accelerating from a 2.1% gain in September, the Ministry of Data and Statistics said Tuesday. The pace, which exceeded the median forecast of 2.2% in a Bloomberg survey of economists, was the fastest since July 2024, when prices jumped by 2.6%.

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Core inflation, which strips out volatile food and energy items, picked up to a 2.2% clip from 2% in September, the data showed. Both headline and core gauges are now hovering above the Bank of Korea’s 2% target.

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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.

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That limits the central bank’s options as it gauges the potential impact from 15% 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.

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The uptick in October inflation was largely driven by a nearly 1.9% slide in the won against the 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 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 gasoline 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.

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Food and non-alcoholic beverage prices climbed 3.5% in October from a year earlier, while housing and utilities costs rose 1.2%. Prices for food and lodging gained 3.2% and transportation costs also increased 3.4%. 

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What Bloomberg Economics Says…

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“Looking ahead, the CPI should edge back toward 2% later this year, as base effects kick in. With inflation broadly anchored and growth risks persisting, the BOK is likely to maintain its easing stance.” 

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— Hyosung Kwon, Bloomberg economist 

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Click here to read full report. 

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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 stabilized.

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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% from the previous quarter, beating the estimate of 1% growth. 

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Private consumption rose 1.3%, fueled by two rounds of cash handouts under the government’s extra budget of more than $20 billion, with spending on both goods and services increasing, the central bank said last week.

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