South Korea's consumer price inflation increased to 2.2% year-on-year in March, up from 2.0% in February, but below the market consensus of 2.3% [1]. On a monthly basis, prices rose by 0.3%, which was also below the market expectation of 0.6% [1]. The primary driver behind the inflation uptick was rising global oil prices, though their impact was mitigated by government interventions such as fuel price caps and food vouchers [1]. Transportation prices saw the largest increase, rising 5% year-on-year compared to 1.1% in the previous month, while food prices declined to 0.5% from 2.1% in February [1].
Core inflation, which excludes food and energy, edged down to 2.2% in March from 2.3% in February, and was slightly above the market consensus of 2.1% [1]. ING's Min Joo Kang notes that the uptick in commodity prices has not yet spread to other products or services, indicating that price pressures remain relatively contained for now [1]. However, ING expects that recent increases in energy prices and currency movements will exert stronger upward pressure on prices in the coming months, with fuel costs continuing to rise despite the government's price cap [1].
Domestic demand is expected to weaken, but government support measures are helping to limit inflationary pressures [1]. The Bank of Korea is projected to maintain its policy rate at 2.5% during its April meeting, adopting a cautious, wait-and-see approach as it monitors the potential impact of external shocks [1].
CONCLUSION
South Korea's March inflation data shows a modest rise, with government measures effectively containing price pressures for now. ING anticipates stronger inflationary forces in the coming months due to energy and currency trends. The Bank of Korea is expected to remain cautious, keeping its policy rate unchanged as it assesses external risks.