The Bank of Korea said Wednesday that consumer inflation will remain high, hovering around 3% in the second half of the year [1].
This projection suggests that price stability remains elusive for South Korea, potentially complicating the central bank's efforts to manage interest rates while the cost of living remains elevated for citizens.
In its bi-annual inflation review released on Wednesday, the BOK said that core inflation is forecast to be in the mid-to-high 2% range [1]. The bank said that inflation risks are likely to persist into next year [1, 2].
These pressures follow a period of significant price growth, as consumer prices reached a 26-month high in May [3]. The surge in prices has fueled expectations for potential rate hikes to curb the trend [3].
The central bank identified persistently high energy costs as a primary driver of these figures. Specifically, spikes in oil prices linked to ongoing Middle East tensions are expected to keep consumer prices elevated [2, 4].
While some reports indicate a truce in the Middle East, the BOK said that the risk of elevated energy costs remains a significant factor in its economic outlook [4]. The bank continues to monitor how these external shocks impact domestic price levels, particularly in the energy and transport sectors.
“Consumer inflation will hover around 3% in the second half of the year”
The BOK's outlook indicates that South Korea is struggling to shake off 'sticky' inflation driven by external geopolitical factors. Because energy imports are highly sensitive to Middle East instability, the central bank may be forced to keep interest rates higher for longer to prevent second-round effects, even if domestic demand remains weak.
