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Economists warn that the prolonged depreciation of the won could push consumer prices higher in the latter half of the year, even as year-over-year inflation eased to 2.0 percent in February from 2.2 percent in January, according to data released Monday by Statistics Korea.
Core inflation, which excludes volatile components such as food and energy, also edged down to 1.8 percent in February from 1.9 percent the previous month, reflecting persistent weakness in underlying price pressures.
The Korea Development Institute (KDI) noted that subdued domestic demand has kept overall inflation in check. However, analysts caution that the won’s sustained weakness, which began late last year, could feed into consumer prices.
“The exchange rate, hovering around 1,450 won per dollar, will inevitably continue to drive up import costs, particularly for energy and raw materials,” said Huh Jun-young, an economics professor at Sogang University. “Consumer price inflation could surpass 2 percent again in the coming months.”
The won's struggles contrast sharply with the performance of other Asian currencies, including the Japanese yen and Chinese yuan, both of which have strengthened against a weakened U.S. dollar.
The Bank of Korea projects inflation will average 1.9 percent this year, while the government and KDI forecast rates of 1.8 percent and 1.6 percent, respectively.
Complicating South Korea's economic outlook are escalating trade policies under U.S. President Donald Trump, including a 25 percent tariff on steel and aluminum imports that took effect on March 12.
Should these tariffs contribute to higher U.S. inflation, the Federal Reserve could respond by raising interest rates, potentially strengthening the dollar and exerting additional inflationary pressure on South Korea.
Conversely, a slowdown in U.S. economic growth could dampen global demand, curbing Korean exports and alleviating price pressures domestically.
“There is ongoing debate over whether Trump’s tariff policies will drive U.S. inflation higher,” said Jung Kyu-chul, head of KDI's macroeconomic analysis department. “For now, rising uncertainty appears to be suppressing economic activity and weighing on prices.”
Even if overall inflation remains stable, consumers are likely to feel the impact of higher prices in key areas such as energy and imported goods. Processed food and other necessities may continue to see price increases despite the broader slowdown in inflation.
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