Strong US Dollar Could Cause Short-Term Inflation in South Korea, Says KDI

The Korea Development Institute (KDI) has said that the strong US dollar may raise prices in South Korea for a short period. KDI warned that the rising value of the dollar could increase the cost of imported goods and put pressure on the country’s inflation rate.

When the US dollar becomes stronger, South Korea needs to spend more won to buy goods priced in dollars. This includes fuel, raw materials, and many imported products. As a result, local companies may raise their prices to cover higher costs, and consumers may end up paying more for everyday items.

KDI said the Korean economy could feel this pressure in the coming months, especially if the dollar continues to rise. The institute also mentioned that this situation may not last long if the exchange rate settles down and global conditions improve.

The strong dollar usually affects countries that depend heavily on imports. Since South Korea imports a large amount of oil, gas, and industrial parts, a stronger dollar can raise production costs. Businesses often pass these extra costs to customers through higher prices, which leads to short-term inflation.

KDI has advised the South Korean government and the Bank of Korea to monitor the exchange rate carefully. It also asked them to take steps to reduce inflation if prices continue to rise. The Bank of Korea may consider adjusting interest rates or using other tools to control the situation.

At the same time, KDI believes that South Korea’s strong export sector may help balance some of the negative effects. A strong dollar makes Korean products cheaper for buyers in the United States and other countries, which can help local companies sell more abroad.

Still, the think tank warned that if price levels stay high for too long, they could affect household budgets and slow down consumer spending.

KDI encouraged both policymakers and businesses to stay alert and prepare for possible changes in the global market.