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Domestic factors to impact prices more than strong dollar: KDI

Published: 29 Apr. 2025, 13:38

A clerk checks U.S. dollar notes at a center of Hana Bank in Seoul on April 25. [NEWS1]

The recent depreciation of the won against the dollar may add short-term pressure on inflation, but domestic factors are likely to have a bigger impact on prices, a state-run think tank said Tuesday.

The won-greenback exchange rate has remained above 1,400 won — a threshold not seen since 2009 — following the shocking, albeit brief, imposition of martial law by ousted former President Yoon Suk Yeol in December. The rate has faced further pressure following new tariffs implemented by U.S. President Donald Trump's administration.

"The impact of a strong U.S. dollar on import prices tends to diminish over time, while domestic factors behind the won's depreciation generally have a more lasting and pronounced effect on consumer prices," the Korea Development Institute (KDI) said in its latest report.

In March, the country's consumer prices, a key indicator of inflation, rose 2.1 percent on-year, remaining in the 2 percent range for the third consecutive month.

The report also found that recent fluctuations in the exchange rate were mainly driven by dollar strength, forecasting that unless the won-dollar exchange rate surges sharply, consumer prices are unlikely to rise beyond the Bank of Korea (BOK)'s 2 percent target by a significant margin.

Yonhap