South Korea's February inflation meets central bank's expectations, escalating Middle East conflict may trigger a new round of price rebounds.

Notice that South Korea's overall inflation rate remains at the central bank's target level, indicating that overall price pressures are still under control before the Iran conflict triggers global energy volatility and brings upward risks. According to data from Statistics Korea on Friday, consumer prices in February rose by 2% year-on-year, unchanged from January. This result is slightly lower than the forecast median of 2.1%, consistent with South Korea's central bank's 2% inflation target, and in line with recent policy signals. The Lunar New Year holiday falls in February this year, which usually boosts food and fresh demand and triggers seasonal price fluctuations. Last year, the Lunar New Year fell in January, making year-on-year comparisons more complex. Excluding volatile food and energy prices, core inflation in February accelerated from 2% in January to 2.3%. South Korea's inflation rate remains in line with the central bank's target Policymakers remain cautious about potential risks from global market dynamics. The escalation of tensions in the Middle East has shaken financial markets, exacerbating fluctuations in oil and other energy products, which could lead to new upward pressure on prices due to rising import costs. South Korea is particularly sensitive to such changes as it relies almost entirely on imports for its energy supply, with the majority of its crude oil and a significant amount of natural gas coming from the Middle East. Barclays economist Bumki Son pointed out that the rise in core inflation may be driven by price increases in tourism-related services (including car rentals, package tours, and hotel accommodations) during the Lunar New Year period, and added that this upward trend is unlikely to continue next month, with normalization expected in March. Bumki Son stated, "However, as international oil prices continue to rise, energy costs may become a key factor affecting the inflation path next month." Economists believe that the impact of rising energy costs may be felt more quickly in South Korea. Morgan Stanley's Chief Economist for South Korea, Catherine Woo, pointed out that rising oil prices often push up import prices, with the effects typically transmitted to consumer prices within one to two months. Economist Hyosung Kwon said, "With the potential closure of the Strait of Hormuz and the escalating tension in the Middle East keeping oil prices high, the South Korean won still faces depreciation pressure. For economies heavily dependent on energy imports, this combination may increase the possibility of a new round of cost-push inflation triggered by fuel and import prices." Last week, the Bank of Korea kept its policy rate unchanged at 2.5% for the sixth consecutive meeting, extending the pause period after four rate cuts since July last year. The central bank raised its inflation expectations for this year from 2.1% to 2.2%, indicating that price pressures will remain near the target level. Bumki Son added, "With the rise in oil prices in March, the upward risks to inflation are increasing, which may make the central bank uncomfortable trying to control inflation expectations." In February, food and non-alcoholic beverage prices rose by 2.1% year-on-year, while prices for meals and accommodation rose by 3%. The cost of housing and utilities rose by 1.2%, and leisure and culture prices increased by 3%. More broadly, consumer price increases remained moderate, with communication costs rising by 0.4% and medical expenses rising by 0.9%. Meanwhile, despite slowing for the fifth consecutive week, Seoul apartment prices continued their upward trend in the latest statistics, even as President Lee Jae-myung criticized multiple homeowners and speculative buyers.