South Korea's central bank forecasts inflation to remain elevated above its 2% target through next year, driven by wage growth in the tech sector and rising public service charges. The bank noted that while global energy price volatility has been somewhat contained, the AI chip boom is creating new inflationary pressures.
Sustained inflation above target could prompt the Bank of Korea to maintain a tighter monetary policy, potentially impacting economic growth and borrowing costs for businesses and consumers in South Korea.
South Korea is likely to experience sustained high consumer prices, with inflation expected to remain above the central bank's 2% target through next year, according to the Bank of Korea (BOK).
The BOK's report indicates that while progress has been made in mitigating the impact of global energy price volatility, particularly following the end of the Middle East conflict, new inflationary pressures are emerging. The boom in the technology sector, driven by artificial intelligence, has led to significant bonuses for employees at major firms like Samsung Electronics and SK hynix. This wage growth is anticipated to spill over into other industries, eventually increasing consumer prices.
Consumer prices in South Korea saw a 3.1% year-on-year increase in May, marking the fastest growth in 26 months. The central bank also noted that rising costs associated with higher crude oil prices and a weakening Korean won are expected to affect the prices of a wider range of products beyond petroleum.
For the second half of 2026, the BOK projects consumer price inflation to hover around 3%, with core inflation, excluding volatile food and energy prices, settling in the mid-2% range. The bank highlighted that past energy price shocks, such as those during the Russia-Ukraine war, have shown a spillover effect on non-energy products approximately six months later, with the impact lasting for about a year.