South Korea's October inflation unexpectedly accelerated to 2.4%, which may prompt the central bank to extend the pause in its easing cycle

Zhitong Finance APP noted that consumer inflation in South Korea accelerated in October, with the depreciation of the won driving up energy and food costs, reinforcing the central bank's rationale for extending the pause in its monetary easing cycle while seeking to cool the real estate market.

The South Korean Statistical Office announced on Tuesday that consumer prices rose 2.4% year-on-year in October, up from 2.1% in September. This pace exceeded the median forecast of 2.2% predicted by surveyed economists and is the fastest growth since July 2024 (when prices rose 2.6%).

Data showed that the core inflation rate, excluding volatile food and energy items, rose from 2% in September to 2.2%. Both overall inflation and core inflation indicators are currently hovering above the Bank of Korea's target of 2%.

South Korea's inflation rate has risen to its highest level since July 2024.

As the latest inflation data is released, the Bank of Korea is at a delicate moment, having kept the benchmark interest rate unchanged in its last three meetings. Although the South Korean economy may face shocks from U.S. tariffs, concerns about asset bubbles and financial stability risks related to household debt have made policymakers hesitant to restart the rate-cutting cycle that began in October last year.

Whether authorities will view Tuesday's data as another reason to extend the pause may depend on how they assess the drivers behind the recent price surge.

Barclays economist Bumki Son stated, "The inflation data exceeded expectations, with stronger price pressures coming from Mid-Autumn Festival-related goods and services as well as adjustments in imported car prices. We believe that, given some of the growth stems from seasonal spending, the Bank of Korea may look through the noise and focus more on the medium-term inflation outlook."

Son indicated that Barclays maintains its forecast for the central bank to cut rates in November, as it continues to focus on South Korea's still weak growth outlook. He added, "Our baseline forecast continues to assume that concerns about financial stability will ease before the November monetary policy committee meeting."

For now, in assessing the potential impact of the U.S. imposing a 15% tariff on South Korean goods, recent price trends have limited the central bank's options. The Bank of Korea estimates that these measures will reduce economic growth by 0.45 percentage points this year and by 0.6 percentage points in 2026.

The rise in October inflation was mainly due to the won's depreciation against the dollar, which fell nearly 1.9% last month, driving up the import prices of energy and food. The won has fallen to its weakest level since March. Since October 1, the won has been the second worst-performing Asian currency against the dollar.

Following the government's partial cancellation of fuel tax subsidies in October, fuel costs have also risen, putting upward pressure on gasoline prices. Meanwhile, according to the Korea Real Estate Board, as of October 27, apartment prices in Seoul have risen for the 39th consecutive week. In October, food and non-alcoholic beverage prices rose 3.5% year-on-year, while housing and utility costs increased by 1.2%. Food and accommodation prices rose by 3.2%, and transportation costs also increased by 3.4% Economist Hyo-sung Kwon stated: "South Korea's inflation data exceeded expectations, strengthening the rationale for the Bank of Korea to maintain the interest rate at 2.5% in November. The weakening won and rising housing prices in Seoul leave policymakers with almost no room for further easing at the moment."

Economists are divided on whether the Bank of Korea will cut interest rates at its last policy meeting of the year on November 27, as policymakers weigh whether housing prices in the capital region have stabilized.

Before the inflation data was released, third-quarter economic growth was stronger than expected, thanks to resilient exports and domestic spending. The Bank of Korea stated last week that private consumption grew by 1.3%, driven by two rounds of cash distribution (under the government's additional budget of over $20 billion), with increases in both goods and services spending. Gross domestic product grew by 1.2% quarter-on-quarter, higher than the estimated growth of 1%