Double Shock of High Exchange Rate and Oil Prices: Global IBs Raise Inflation Forecasts from 2% to 2.4%

The KOSPI index rebounded over 3% in early trading on the 3rd amid expectations for Hormuz passage, displayed on the electronic board showing domestic stock market indices in the dealing room at the Hana Bank headquarters in Jung-gu, Seoul. April 3, 2026. Photo by Kang Jinhyung

Global investment banks (IBs) have significantly raised their inflation forecasts for South Korea. This upward trend began with the Organisation for Economic Co-operation and Development (OECD) increasing its inflation outlook for Korea this year by 0.9 percentage points to 2.7%. Due to the shockwaves from the Middle East energy crisis, it now appears inevitable that inflation will surpass the government's target of 2.1%.

According to the International Finance Center on April 5, the average inflation forecast for this year by eight major overseas investment banks rose from 2% at the end of February to 2.4% at the end of March, an increase of 0.4 percentage points.

This is 0.2 percentage points higher than the Bank of Korea's February projection of 2.2%. With the exception of Bank of America (2.1%) and UBS (2%), the other six investment banks raised their forecasts to the mid-2% range. Barclays adjusted its forecast from 1.9% to 2.5%, Citi from 1.9% to 2.6%, Goldman Sachs from 1.9% to 2.4%, JP Morgan from 1.7% to 2.6%, HSBC from 2.1% to 2.3%, and Nomura from 2.1% to 2.4%.

JP Morgan, which provided the highest forecast among the IBs at 2.6%, stated in its report on April 2 that "the shock from Middle East energy prices has not yet been fully reflected in the data," and assessed that "the government's price stabilization measures appear to have had some effect."

JP Morgan added, "We expect consumer price inflation in April to reach around 2.6%. If the situation in the Middle East does not improve materially, inflation is expected to exceed 3% from May to September. Forecasts beyond that period are subject to significant uncertainty."

Citi, which also forecast 2.6%, noted in its report on the same day that it is "provisionally assuming a consumer price inflation rate of 2.8% for April," explaining, "This is because retail gasoline prices are expected to rise despite fuel tax reductions and price caps." Citi predicted that due to high oil prices and other factors, "consumer price inflation will likely remain in the range of 2.8% to 3.3% from April to September this year."

The main reason these major institutions have raised their inflation forecasts is that it is difficult to avoid the impact of the Middle East energy shock. Considering there is a lag of three to six months before the effects of international oil price increases feed into inflation, some analysts point out that the energy shock is just beginning.

The KRW-USD exchange rate is another factor amplifying inflationary pressure. After surpassing the 1,500 won mark for the first time since the financial crisis on March 19 (based on weekly closing prices), the exchange rate has continued to fluctuate between 1,510 won and 1,530 won through last week. A rising exchange rate not only affects petroleum prices, but also has a broad impact on import prices for agricultural, livestock, fishery, and processed food products.

This content was produced with the assistance of AI translation services.