Home > Business > Economy

Is Korea already in stagflation? Some say so as cost-of-living pressures mount.

Published: 28 Apr. 2026, 07:00

JIN MIN-JI
[email protected]

A customer shops at a supermarket in Seoul on April 6. The Iran war has fueled inflationary pressure in Korea, as it heavily relies on the Middle East for crude oil. [NEWS1]

[BEHIND THE NUMBERS]

Recent indicators suggest that the Korean economy remains far from stagflation, with stable headline inflation and resilient exports underscoring its relative strength. However, for many households, rising living costs, weakening real income and the high youth unemployment rate are creating a growing sense that early warning signs of stagflation are already here.

For one mother, her child’s cram school abruptly began charging a 30,000 won ($20) monthly shuttle fee in March, and his piano and taekwondo academies raised tuition by 15 percent, citing higher rent. At the same time, she, as a freelance instructor paid per class, has seen fewer bookings as clients also cut back on their own spending, reducing her earnings by almost half compared to the previous year.

“I’m working seven days a week to cover living costs, but it still doesn’t feel like enough,” she said.

While financial authorities do not expect stagflation to materialize anytime soon, many households are already feeling its early signs, including persistent price increases and sluggish growth. To them, solid headline figures offer little comfort; instead, they reflect how economic strength has been concentrated in a narrow set of mainstay industries, such as semiconductors, with limited spillover to the broader economy.

In March, import prices rose by 16.1 percent from the previous month — the steepest increase since 1998 — due to a nearly 90 percent increase in crude oil import prices amid the prolonged conflict in the Middle East. The number of employed youth, or those aged between 15 and 29, fell by 147,000 in March from a year earlier, extending a 41-month streak of declines, adding to concerns over weakening growth.

“If we take into account cost-of-living pressures, this is stagflation,” said Kim Sang-bong, an economics professor at Hansung University. “Statistics aren’t capturing reality. Authorities keep saying that inflation is stable, but household price pressures remain highly elevated.”

In April, the investment banking arm of Paris-based Natixis also flagged mounting risks to the Korean economy, warning that it and other emerging Asian markets could face a “stagflationary environment where central banks will not be able to help.” The concern stems in part from Korea’s heavy dependence on Middle Eastern energy, with roughly 70 percent of its crude oil being imported from the region, as well as the persistently weak won against the dollar.

Cost of living races ahead of inflation

As high prices persist, people are cutting costs in their daily spending, most notably by seeking out cheap meals. At an engineering office’s cafeteria in Gangnam District, southern Seoul, for example, the average number of lunchtime diners per day jumped by nearly 20 percent in March compared to the average number of daily lunchtime diners last year, according to Hyundai Green Food, which operates the cafeteria.

Across convenience store chains, sales of items priced below 1,000 won are also surging. At CU, sales of its private-label products priced under that threshold rose 38 percent last year from the previous year, and the sales of similarly low-priced items at GS25 rose 21 percent over the same period.

The cost pressures leading to these shifts are increasingly affecting service-related prices as well. On-year growth for consumer prices remains in the low 2 percent range — at 2.2 percent in March — but prices in the personal services sector, which reflect a wide range of everyday household costs, including dining out, travel and private education, rose 3.2 percent in March compared to the previous year, following a 3.5 percent on-year increase in February.

Households have even begun to cut back on education, a key spending category for many Koreans. Education-related spending fell for four consecutive quarters through the September to December period last year, including a 4 percent on-year decline in the final quarter.

“In a stagflationary environment, economic growth and incomes stagnate while prices rise, leading to a decline in consumption,” said Prof. Kim. “Amid rising living costs, there’s little left to spend after covering essential expenses. Even the government’s supplementary budget would do little to revive spending, as consumers would just turn to cheaper products from abroad.”

The rising stagflation risks are weighing on Korea’s growth outlook. The Organisation for Economic Cooperation and Development cut Korea’s 2026 growth forecast from 2.1 percent in December 2025 to 1.7 percent in March, citing the energy cost hikes. West Texas Intermediate crude, the U.S. benchmark, rose roughly 2 percent to around $96 per barrel on Monday.

In April, the International Monetary Fund (IMF) kept its growth forecast for the country at 1.9 percent for the year, unchanged from January. However, the outlook would have been 0.2 percentage points higher if it weren’t for tensions in the Middle East, said IMF Executive Director Choi Ji-young.

“The key question is how long this uncertainty will persist,” Choi told reporters on April 16, adding that “if international oil prices rise to around $100 per barrel and remain at that level, it would exert significant downward pressure on growth.”

Job seekers look around at a job fair at Kyungpook National University in Daegu on March 31. [NEWS1]

Stronger shock, but still too early to diagnose

The current economic backdrop is drawing comparisons to the stagflation of the 1970s, a period defined by high inflation, elevated unemployment rates and stagnant growth. The parallel is most often made on the basis that both episodes were triggered by oil crises, including the 1973 Arab oil embargo, which led to a sharp surge in global energy costs and caused stagflation that lasted through 1983.

The emerging stagflation risk linked to today’s Middle East conflict-driven energy shock is seen as potentially more far-reaching than that of the 1970s, with economists pointing to global economic integration.

“The current situation carries far greater systemic impact than during the 1970s stagflation,” said Prof. Kim Yong-jin, who teaches business at Sogang University. “Global supply chains at the time were not as deeply integrated as they are today. Unlike the past, a disruption originating at a single critical node can now propagate rapidly across regions and sectors, amplifying both the scale and speed of transmission in today’s environment.”

The impact is reflected in the youth unemployment rate, which remained above 7 percent for the second consecutive month in March at 7.6 percent, following a 7.7 percent growth in February alone, according to government data.

Korea’s integration with the global economy is evident in its trade figures, with total trade accounting for 51 percent of its GDP in 1973 and 85 percent in 2024, according to data from the World Bank Group.

However, some caution that it is premature to conclude that Korea has entered a period of stagflation.

“Prices edged up due to higher crude oil costs, but it’s difficult to say the broader economy has entered stagflation,” said Won Chae-hwan, a business professor at Sogang University. “Although the initial round of talks has broken down, the United States is unlikely to sustain a prolonged war, given domestic constraints. With the November midterm elections approaching and negotiations with China — already postponed to May — on [the United States’] agenda, further delays would carry diplomatic costs.”

An electronic display board celebrates the Kospi’s record-high closing amount of 6,615.03 points, up 2.15 percent from the previous trading session, at Hana Bank’s trading room in central Seoul on April 27. This marks the first time the benchmark index broke past 6,600. [YONHAP]

Prof. Won added that the strong market performance serves as counterevidence to concerns about stagflation, as it points to “ample liquidity.” Korea’s benchmark Kospi hit a fresh all-time high on Monday to 6,615.03 points, fully recouping losses incurred after the war broke out in late February. The won has also stabilized to 1,472.5 per dollar after it persistently broke past the psychological threshold of 1,500 in March.

Some analysts who dispute Korea’s state of stagflation say that subdued growth is not necessarily a concern, given the country’s economic size.

“The weak growth should be viewed as structural,” said Yoonsoo Lee, a professor at Seoul National University’s Graduate School of International Studies. “It would be considered a downturn if Korea were expected to grow rapidly, but its potential growth rate is below 2 percent, making it difficult to characterize the current situation as stagflation.”

Against this setting, Prof. Lee said that policy priorities should shift toward boosting productivity and supporting structural adjustment. “That entails maintaining relatively higher interest rates to facilitate restructuring while providing targeted support to vulnerable groups and struggling sectors rather than relying on broad-based fiscal stimulus.”

BY JIN MIN-JI [[email protected]]