OECD Raises South Korea Inflation Forecast to 2.7%

The OECD, in its 'Interim Economic Outlook' report released on the 26th, revised up its annual inflation forecast for South Korea this year, citing the impact of the Middle East conflict and higher import energy prices due to the won's depreciation. This revised figure represents the highest level in the past decade, excluding 2022 (5.1%) and 2023 (3.6%), periods significantly affected by the Russia-Ukraine war. The OECD projects South Korea's core inflation rate to reach 2.4% this year, an increase of 0.6 percentage points from its December forecast of 1.8%.

The OECD specifically pointed out that for Asian countries heavily reliant on Middle East energy imports, such as South Korea and Japan, net energy imports account for over 80% of their domestic energy consumption. It added that the strengthening of the US dollar since late February, leading to a weaker won, is further exacerbating upward pressure on energy prices. This forecast is based on the technical assumption of stabilization in the Middle East conflict and a moderation in energy and fertilizer prices in the latter half of the year.

The government is stepping up its efforts to manage inflation. Deputy Prime Minister and Minister of Economy and Finance Koo Yoon-cheol stated, "We will establish a Middle East War price response team under the Livelihood Price Task Force (TF) and expand the number of specially managed items from the current 23 to 43 for concentrated management," adding, "If necessary, we will add more items for intensive oversight."