ING’s Senior Economist Min Joo Kang notes that South Korean inflation accelerated in April on higher energy prices, but government measures such as food vouchers, a gasoline price cap and frozen utility tariffs helped limit the increase. Core inflation remains near 2%, yet ING expects headline inflation to climb towards 3% by June, keeping the Bank of Korea (BoK) alert to upside risks.
Government support cushions energy-driven pressures
“South Korea’s consumer price inflation accelerated to 2.6% year-on-year in April from 2.2% in March, matching market consensus but below our estimate of 2.8%. The downside surprise was mainly due to a larger-than-expected drop in food prices.”
“Though inflation reached a 21-month high in April, government measures such as food vouchers, a gasoline price cap, and freezing utility prices helped limit increases in food and energy. Inflation excluding food and energy stayed at 2.2% for the second month.”
“As expected, energy prices rose the most. Oil and petroleum prices increased by 21.9% YoY, adding 0.84 ppt to overall inflation. Fuel price cap measures reduced energy price hikes, keeping them lower than in other major economies.”
“Among services, housing rental prices edged up 1.0%, showing a gradual hike since Jan 2024 (-0.2%). Due to Korea’s unique Jeonse rental system, it hasn’t moved quickly.”
“Going forward, we expect inflation to rise further despite the government measures, reaching around 3% as early as June.”
“Overall, the BoK will focus on curbing inflation expectations. Considering these factors, the BoK’s rate hikes should be gradual.”
“We currently expect a total of 50 bps hikes in the second half of 2026. We believe a July hike is more probable than a May hike for now.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/south-korea-gradual-cpi-rise-keeps-bok-cautious-ing-202605061736
