In February, South Korea's consumer price index (CPI) experienced a year-on-year increase of 2%, which reflects a cooling from January's gain of 2.2%. This moderation in inflation may grant the nation's central bank additional flexibility in its monetary policy decisions. Furthermore, the core CPI for the same month showed an even lower rise of 1.8% on a yearly basis, representing only a 0.1% increase from January, according to the Bank of Korea's report released on Thursday. The Bank of Korea has established a target inflation rate of 2% for the national CPI.
In a significant monetary policy adjustment, the central bank reduced the key policy interest rate by 0.25% to 2.75% at the end of February, citing reasons such as subdued inflation levels, easing household debt conditions, and sluggish economic growth. During this period, South Korean consumers encountered relatively subdued price increases across a majority of categories.
Notably, restaurant and hotel expenses rose by 2.9% year-on-year, while communication expenses saw a minimal increase of just 0.1%, and costs for alcohol and tobacco were up by 0.3% on an annual basis. Similar to many countries around the globe, South Korea witnessed a surge in inflation during and following the pandemic, with the CPI peaking at 6.3% year-on-year in July 2022.
Since this peak, inflation rates have gradually cooled but still hovered modestly above the Bank of Korea's target at the close of 2024, indicating ongoing economic challenges. Looking forward, the Bank of Korea has made projections for the nation's CPI to increase by 1.9% year-on-year in 2025, while the core CPI is expected to see a rise of 1.8%.
Additionally, it is anticipated that South Korea's gross domestic product (GDP) will show a moderate increase of 1.5% year-on-year in 2025. However, this growth potential may be dampened to some extent by challenges arising from international trade tensions and sluggish overall global economic conditions, as advised by the central bank's latest assessments..