Nomura Asia Insights: Korea Inflation Rises Again on Higher Oil Prices While Core Inflation Remains Sticky
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Nomura reports that Korea's headline CPI rose to 3.2% year-over-year in June, slightly up from 3.1% in May. However, the month-over-month increase slowed significantly to 0.1%, indicating that the upward trend remains primarily driven by previous cost shocks and base effects. Core inflation, excluding food and energy, held steady at 2.5% year-over-year with zero monthly growth, suggesting underlying inflation is stabilizing around 2.5%.
The report notes that goods prices surged 3.8% year-over-year, heavily influenced by a 24.7% jump in petroleum products, which contributed 0.93 percentage points to headline inflation. Conversely, service inflation moderated to 2.6%, with personal services, excluding dining out, easing from 4.4% to 3.9%.
Nomura maintains its CPI forecasts at 2.7% for 2026 and 2.1% for 2027. The firm expects inflation to peak in August before gradually declining toward the Bank of Korea's 2% target by the second quarter of 2027. While falling oil prices present downside risks, a weak currency and flexible fuel price caps may limit the transmission of these declines. Driven by financial stability concerns, the Bank of Korea is expected to maintain a hawkish stance. Nomura anticipates three consecutive 25 basis point rate hikes in July, October, and January, bringing the terminal rate to 3.25%.