KOREA: Headline Inflation Up Core Contained, Won Likely To Add To Import Prices

December CPI headline inflation printed higher than expected rising 0.4% m/m to 1.9% y/y up from 1.5% in November. However, underlying inflation unexpectedly moderated 0.1pp to 1.8% y/y. The finance ministry expects CPI inflation to be lower in 2025 after 2024’s 2.3%. It started 2024 at 2.8% and eased to 1.9% but troughed at 1.3% in October.

• Oil prices added to headline inflation in December and the finance ministry expects the impact could be greater in January. The weaker won will be adding to imported energy costs.
• USDKRW trended higher through late Asian trading on Monday driven by continued political uncertainty after reaching a low of 1465.60 earlier. It finished the day up 0.1% to 1471.95.
• USDKRW rose 5.4% in December and the JP Morgan KRW NEER fell 2.4% m/m to be down 6.4% y/y and so there is a risk of an increase in imported inflation pressures. The Bank of Korea warned this could be felt in January but it expects headline to stabilise below 2% after then.
• The Bank of Korea cut rates in both October and November. The outlook is uncertain with the political uncertainty of the last month likely to weigh on growth but inflation picking up again. However core remained contained in December, thus making further easing in January possible.
• Korean markets are closed for the year-end holiday. 

Korea imported inflation vs KRW y/y%