Inflation in South Korea

A short history of inflation in South Korea

The Second Oil Shock (1979 to 1981)

South Korean inflation peaked at 32.5% in the year to October 1980, in a year when almost everything went wrong at once. The second oil shock hit an economy that imported nearly all its energy, a poor harvest raised food prices, President Park Chung-hee had been assassinated the previous October, and the heavy and chemical industry drive of the 1970s had built capacity faster than there was demand for it. The economy contracted for the first time since the Korean War.

Stabilisation (1981 onwards)

The programme that followed was severe and effective: budget restraint, credit control and an end to the directed lending that had funded the industrial push. Inflation fell into low single figures within four years and has stayed there, and the Bank of Korea adopted a formal inflation target in 1998, after the Asian financial crisis.

Post-Covid Inflation (2021 to 2023)

In South Korea, prices rose fastest in July 2022, at 6.3%. The causes of the post-Covid inflation were global in nature, beginning with the lockdowns: factories and ports closed and the shipping between them fell out of sequence, so goods took longer to make and longer to arrive. Governments had spent heavily supporting household incomes through those closures, so when restrictions lifted there was money waiting to be spent and not enough on the shelves to spend it on. Then in February 2022 Russia invaded Ukraine, disrupting two of the world's largest suppliers of wheat, fertiliser, oil and gas at once, and the cost of everything grown, heated or transported rose with them.

Because the causes were shared, so was the timing: most countries peaked within a few months of one another in late 2022. The major inflation events covers this episode and the others in more detail.