South Korea’s inflation spike may prompt country's central bank to extend easing pause

South Korea’s consumer inflation quickened in October as a weaker won lifted energy and food costs, reinforcing the case for the central bank to extend the pause in its monetary easing cycle as it seeks to cool a housing market rally.

Consumer prices advanced 2.4% from a year earlier, accelerating from a 2.1% gain in September, the Ministry of Data and Statistics said Tuesday. The pace, which exceeded the median forecast of 2.2% in a Bloomberg survey of economists, was the fastest since July 2024, when prices increased by 2.6%.

Core inflation, which strips out volatile food and energy items, picked up to a 2.2% clip from 2% in September, the data showed. Both headline and core gauges are now hovering above the Bank of Korea’s 2% target.

The latest inflation reading comes at a delicate time for the BOK, which has held its key rate steady for the past three meetings. Even as the economy faces a likely blow from US tariffs, concerns over asset bubbles and financial stability risks linked to household debt have kept policymakers from resuming the rate-cutting cycle that began in October last year.

Whether authorities view Tuesday’s data as another reason to extend their pause may depend on how they assess the drivers of the latest price spike.

“Inflation surprised on the upside with stronger price pressures from Chuseok-related goods and services, and imported car price adjustment,” said Bumki Son, an economist at Barclays Bank PLC. “Given that some of the increase was coming from the seasonal spending, the BOK is likely to see through the noise and focus on the medium-term inflation outlook, in our view.”

Son said Barclays is maintaining its forecast for the central bank to cut rates in November as it remains focused on Korea’s still-weak growth outlook.

“Our baseline continues to assume financial stability concerns will ease heading into the November MPC meeting,” he added.

For now, recent price trends limit the central bank’s options as it gauges the potential impact of 15% US tariffs on South Korean goods. The BOK estimates the measures will shave 0.45 percentage points off growth this year and 0.6 points in 2026.

The uptick in October inflation was largely driven by a nearly 1.9% slide in the won against the dollar last month, pushing up import prices for energy and food. The currency fell to its weakest level since March. The won is the second-weakest performing Asian currency versus the dollar since Oct. 1.

Fuel costs also climbed after the government partially rolled back fuel tax subsidies in October, adding to upward pressure on gasoline prices. Meanwhile, apartment prices in Seoul extended their streak of gains for a 39th straight week as of Oct. 27, according to the Korea Real Estate Board.

Food and non-alcoholic beverage prices climbed 3.5% in October from a year earlier, while housing and utilities costs rose 1.2%. Prices for food and lodging gained 3.2% and transportation costs also increased 3.4%.

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