Key facts
- South Korea's central bank forecasts inflation to remain above its 2% target through next year.
- The AI chip boom is contributing to inflationary pressures through potential wage increases and higher consumer demand.
- Consumer prices rose 3.1% year-on-year in May, the fastest growth in 26 months.
- Core inflation is projected to be in the mid-2% range in the latter half of 2026.
- Rising crude oil prices and a weaker Korean won are expected to impact product prices.
- South Korea's antitrust watchdog rejected settlement proposals from two major food delivery platforms.
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, 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 have shown a spillover effect on non-energy products approximately six months later, with the impact lasting for about a year.
A recent Bank of Korea study also indicated that the country's increasing investment income from overseas assets might not boost the won as much as anticipated, as a significant portion of these earnings is kept and reinvested abroad rather than repatriated.
Separately, South Korea's antitrust watchdog has rejected settlement proposals from the country's two largest food delivery platforms, leaving both firms exposed to potentially significant fines over alleged unfair business practices.