South Korea Inflation Rate MoM: December 2025 Analysis and Macro Outlook
The latest data from the Sigmanomics database reveals South Korea’s Consumer Price Index (CPI) inflation rate for December 2025 declined by 0.20% month-over-month (MoM), marking a notable shift from the 0.30% increase recorded in November. This report examines the recent inflation dynamics, compares them with historical trends, and assesses the broader macroeconomic implications amid evolving monetary, fiscal, and geopolitical conditions.
Table of Contents
South Korea’s inflation rate MoM for December 2025 fell by 0.20%, reversing the 0.30% rise seen in November. This decline contrasts with the average monthly inflation rate of approximately 0.20% over the past year, signaling a cooling price environment. The shift reflects a combination of easing domestic demand pressures and external factors such as commodity price stabilization.
Drivers this month
- Energy prices contributed -0.12 percentage points (pp) due to lower global oil prices.
- Food prices edged down by -0.05 pp, reflecting seasonal harvest gains.
- Services inflation remained stable, contributing 0.03 pp, supported by steady wage growth.
Policy pulse
The Bank of Korea’s inflation target remains at 2.00% YoY. The current MoM deflationary print suggests inflationary pressures are easing but remain within the central bank’s tolerance band. This may reduce urgency for further rate hikes after the recent 25 basis points increase in November.
Market lens
Immediate reaction: The KRW/USD exchange rate strengthened by 0.30% within the first hour post-release, reflecting market optimism about subdued inflation easing pressure on monetary policy. The 2-year government bond yield dipped 5 basis points, signaling expectations of a slower pace of tightening.
Core macroeconomic indicators provide context for the inflation reading. South Korea’s GDP growth slowed to an annualized 2.10% in Q3 2025, down from 2.80% in Q2, consistent with moderating inflation. Unemployment held steady at 3.40%, indicating a balanced labor market. Wage growth remained moderate at 3.20% YoY, supporting consumer spending without overheating demand.
Monetary Policy & Financial Conditions
The Bank of Korea’s policy rate stands at 3.25%, following a series of hikes since early 2025. Financial conditions have tightened, with credit growth slowing to 4.50% YoY from 6.00% a year ago. Inflation easing may prompt a pause in further rate increases, balancing growth risks and price stability.
Fiscal Policy & Government Budget
Fiscal policy remains expansionary, with the government targeting a 3.80% of GDP deficit in 2025 to support infrastructure and social welfare programs. This stimulus partially offsets monetary tightening, cushioning the economy against external shocks.
Seasonal factors and commodity price shifts largely explain the recent volatility. Energy prices, which spiked mid-year, have stabilized, contributing to the downward pressure. Food price moderation also played a role, while core services inflation remains sticky, reflecting wage-driven cost pass-through.
This chart reveals a trend toward easing inflation after a mid-year peak, suggesting that South Korea’s inflationary cycle may be entering a consolidation phase. The data supports expectations of a slower pace of monetary tightening in early 2026.
Market lens
Immediate reaction: KRW strengthened modestly, and 2-year yields declined, reflecting market anticipation of a more dovish Bank of Korea stance. Inflation-linked bond spreads narrowed, indicating reduced inflation risk premiums.
Looking ahead, inflation in South Korea faces mixed pressures. On the upside, wage growth and domestic demand could sustain moderate inflation. On the downside, global commodity prices remain subdued, and fiscal stimulus may be tapered in 2026. Geopolitical risks, including tensions in Northeast Asia, pose potential supply chain disruptions that could reignite inflation.
Bullish scenario (20% probability)
- Inflation rebounds above 0.30% MoM by Q2 2026 due to stronger wage growth and commodity price increases.
- Monetary tightening resumes, supporting KRW appreciation and bond yields.
Base scenario (60% probability)
- Inflation remains near zero to 0.20% MoM, consistent with stable core inflation and moderate growth.
- Monetary policy pauses, balancing growth and inflation risks.
Bearish scenario (20% probability)
- Inflation falls below zero MoM, risking deflationary pressures amid global slowdown.
- Monetary easing considered, KRW weakens, and bond yields decline.
South Korea’s December 2025 inflation rate MoM print of -0.20% signals a cooling price environment after months of moderate inflation. This shift aligns with easing commodity prices and cautious monetary policy. The Bank of Korea faces a delicate balancing act between supporting growth and containing inflation. External geopolitical risks and fiscal policy adjustments will be key to watch in 2026.
Investors and policymakers should monitor wage trends, commodity markets, and global economic conditions closely. The inflation trajectory suggests a pause in rate hikes, but vigilance remains essential given the uncertain global backdrop.
Key Markets Likely to React to Inflation Rate MoM
South Korea’s inflation data typically influences currency, bond, and equity markets sensitive to interest rate expectations and economic growth. The following five symbols historically correlate with inflation trends and monetary policy shifts in KR:
- KRWUSD – The Korean won’s exchange rate versus the US dollar reacts swiftly to inflation surprises and policy shifts.
- KOSPI – South Korea’s benchmark stock index reflects investor sentiment on economic growth and inflation.
- SAMSUNG – A major export-driven stock sensitive to currency and inflation-driven cost changes.
- BTCUSD – Bitcoin often acts as an inflation hedge and risk sentiment barometer globally.
- USDKRW – The inverse of KRWUSD, also highly sensitive to inflation and monetary policy.
Inflation vs. KRWUSD Exchange Rate Since 2020
Since 2020, monthly inflation changes in South Korea have shown a strong inverse correlation with the KRWUSD exchange rate. Periods of rising inflation often coincide with KRW depreciation due to expectations of tighter monetary policy. The recent December 2025 deflation print aligns with a 0.30% KRW appreciation, underscoring this relationship.
FAQs
- What is the current inflation rate MoM for South Korea?
- The latest inflation rate MoM for South Korea is -0.20% for December 2025, indicating a slight price decline from November’s 0.30% increase.
- How does this inflation reading affect South Korea’s monetary policy?
- The cooling inflation reduces pressure on the Bank of Korea to raise rates further, suggesting a possible pause in tightening.
- What are the risks to South Korea’s inflation outlook?
- Risks include geopolitical tensions disrupting supply chains, commodity price volatility, and potential fiscal policy shifts impacting demand.
Takeaway: South Korea’s inflation cooling in December 2025 signals a potential pause in monetary tightening, but external risks warrant close monitoring.
This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.
The December 2025 inflation rate MoM of -0.20% contrasts with November’s 0.30% and the 12-month average of 0.20%. This reversal highlights a cooling trend after a brief acceleration in October and November. The monthly inflation trajectory over 2025 shows volatility, with peaks in February (0.70%) and October (0.50%), and troughs in June and September (-0.10% each).
Key figure: The -0.20% MoM decline is the first negative print since September 2025, signaling a potential inflection point in price pressures.