The South Korean economy is experiencing strong export performance, particularly in semiconductors, prompting major financial institutions to raise their economic growth forecasts to the 3% range. Despite government measures to stabilize prices, such as the maximum price system for petroleum products and a decline in exchange rates, the consumer price inflation rate remains below the Bank of Korea's target level.
According to the Ministry of Economy and Finance's October edition of the 'Recent Economic Trends' report released on the 19th, consumer prices rose by 2.9% last month, a slight decrease from the previous month's 3.1%. However, this figure still shows a significant gap from the Bank of Korea's inflation target of 2%.
The inflation rate for September did not exceed 3% due to falling prices of agricultural, livestock, and fishery products, as well as government measures to stabilize petroleum prices. The ministry estimates that the implementation of the maximum price system for petroleum products lowered the consumer price inflation rate by 0.6 percentage points in September. Without this measure, the inflation rate would have reached 3.5%.
Additionally, the prices of agricultural, livestock, and fishery products contributed to the easing of inflation. Last month, these prices fell by 0.3% compared to a year earlier, with the fresh food index dropping by 3.3% year-on-year.
However, core inflation has not decreased to the Bank of Korea's target level. Excluding food and energy, core inflation rose by 2.8% compared to the previous year, while the index excluding agricultural and petroleum products increased by 2.7%.
The Bank of Korea's import price statistics also show mixed trends in international prices and exchange rates. According to the 'September 2026 Export and Import Price Index and Trade Index' released on the 16th, the import price index in won terms rose by 1.7% from the previous month and by 17.6% compared to the same month last year, driven by rising international oil prices.
Import prices can impact domestic producer and consumer prices with a lag. An increase in import costs for crude oil and raw materials can raise production costs for companies, which may then be reflected in consumer prices.
Key factors influencing future price trends include international oil prices and exchange rates. If international oil prices rise but the won remains strong, the increase in domestic import costs may be mitigated. Conversely, if the exchange rate rises again, an increase in international oil prices could have a direct negative impact on domestic prices.
External factors surrounding inflation remain uncertain. The ongoing conflict between the U.S. and Iran, along with worsening conditions in the Middle East, could disrupt oil supply and lead to a spike in international oil prices, posing a burden on South Korea's economy, which is heavily reliant on energy imports. Additionally, renewed tensions in U.S.-China trade relations could increase global trade uncertainties.
Concerns about exchange rates also persist. Strong export performance, particularly in semiconductors, could increase the influx of dollars into the domestic market, contributing to exchange rate stability. However, increased demand for dollars due to investments in the U.S. could exert upward pressure on exchange rates. For exchange rates to remain stable, a smooth supply of dollars is essential.
There are also analyses suggesting that domestic recovery could push prices higher. Increased consumer spending may give companies more room to raise prices, and rising demand for services could slow the pace of price declines. In fact, last month, service prices rose by 2.7% compared to a year earlier, while industrial products increased by 4.2%, and electricity, gas, and water prices rose by 0.4%. Despite falling prices for agricultural, livestock, and fishery products, overall inflation has not dropped below the high 2% range.
In this uncertain environment, experts predict that inflation rates will remain in the high 2% range until the second half of this year, with potential for a larger increase starting next year.
Heo Jeong, a professor of economics at Sogang University, stated, "I think inflation this year will be lower than 3%." He added, "The truce in the U.S.-China trade war is set to end in January next year, so we need to closely monitor what policies the U.S. will adopt in the meantime." He further explained that policies from the Trump administration could impact South Korea's inflation, economic growth, and exchange rates, warning that exchange rates could rise to the 1,400 won level at any time.
* This article has been translated by AI.
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