South Korea's consumer price inflation (CPI) accelerated to 2.6% year-on-year in April, up from 2.2% in March, reaching a 21-month high. This figure matched market consensus but was below ING's estimate of 2.8%, with the downside surprise attributed to a larger-than-expected drop in food prices [1]. The main driver of the inflation increase was energy, as oil and petroleum prices surged by 21.9% year-on-year, contributing 0.84 percentage points to overall inflation. However, government interventions, including food vouchers, a gasoline price cap, and frozen utility tariffs, helped limit the rise in food and energy prices, keeping inflationary pressures lower than in other major economies [1].
Core inflation, which excludes food and energy, remained steady at 2.2% for the second consecutive month. Housing rental prices increased by 1.0%, continuing a gradual upward trend since January 2024, influenced by Korea's unique Jeonse rental system, which has resulted in slower movement in rental prices [1].
Looking ahead, ING expects headline inflation to climb towards 3% by June, despite ongoing government measures. The Bank of Korea (BoK) is expected to remain vigilant regarding upside risks to inflation and will focus on managing inflation expectations. ING forecasts a total of 50 basis points in rate hikes during the second half of 2026, with a July hike seen as more likely than a May hike at this stage [1].
CONCLUSION
South Korea's inflation is rising, primarily driven by energy prices, but government measures have helped contain the increase. The Bank of Korea is expected to proceed cautiously with rate hikes, focusing on inflation expectations as headline inflation may reach 3% by June. Market impact is moderate, with gradual policy adjustments anticipated.