Consumer Price Inflation at 2%, but GDP Deflator Reaches 2.7%? [Statistics Insight]

Yonhap News Agency

Recently, the consumer price inflation rate has stabilized at around 2%, which is the Bank of Korea's inflation target. However, attention is being drawn to the GDP deflator, another price indicator, as it remains in the upper 2% range.

According to the National Data Office and the Bank of Korea, the annual consumer price inflation rate in 2025 was 2.1%. On a quarterly basis, it was 2.1% year-on-year in both the first and second quarters, and 2.0% in the third quarter. In the fourth quarter, it rose to 2.4% due to price increases in some volatile items such as agricultural, livestock, and fisheries products. The core inflation rate, which excludes highly volatile food and energy prices, remained stable at 1.9% for the year. It was 1.9% in the first quarter, 2.0% in the second quarter, 1.7% in the third quarter, and 2.0% in the fourth quarter.

In contrast, the GDP deflator remained at a high level, recording 2.4% in the first quarter of this year, and 2.8% and 2.7% in the second and third quarters, respectively. Unlike the consumer price index, which is based on household consumption items, the GDP deflator is a price index that covers all GDP expenditure components, including consumption, investment, and exports and imports. The sum of the real GDP growth rate and the GDP deflator is the nominal GDP growth rate. From an expenditure perspective, GDP is the sum of domestic demand and net exports, so the GDP deflator represents the overall price level of domestically produced final goods, including both domestic and export/import prices.

While South Korea's real GDP growth rate has remained low since 2021, nominal GDP has recorded a high average growth rate of 5.6% since 2021. Over the four years from 2021 to 2024, the average increase in the GDP deflator was 2.8%, which is higher than the 25-year average of 2.1% from 2000 to 2024.

According to the report "Recent Factors Affecting Changes in the GDP Deflator and Their Implications," released on the 22nd by Park Sunwoo, an analyst at the National Assembly Budget Office, the recent rise in the GDP deflator is due to improved terms of trade. The sharp increase in semiconductor prices and the downward trend in international oil prices have significantly improved the terms of trade-the ratio of export prices to import prices-which has had a considerable impact on the rise of the GDP deflator.

From the first to the third quarter of 2025, the domestic demand deflator increased by 2.1%, 1.6%, and 1.6%, respectively, while the terms of trade index rose from 1.7% in the first quarter to 2.8% and 2.6% in the second and third quarters, and further to 5.0% in the fourth quarter. The terms of trade index change rate improved from -2.8% in 2021, -8.1% in 2022, and -0.3% in 2023, to 3.5% in 2024 and 3.0% in 2025. This improvement in the terms of trade index exerted upward pressure on the GDP deflator in 2025.

The GDP deflator is published in the "National Income (Preliminary)" data released by the Bank of Korea, and the figures for the fourth quarter and annual data for 2025 are expected to be released in early March this year. According to the Bank of Korea's announcement on the 22nd, the annual real growth rate for 2025 was 1.0%. Analyst Park estimated the annual increase in the GDP deflator for 2025 to be between 2.5% and 2.7%. Accordingly, the nominal GDP growth rate for 2025 is expected to be around 3.5% to 3.7%. According to the "2026 Economic Growth Strategy" announced by the Ministry of Economy and Finance on January 9 this year, the real and nominal growth rates for 2025 are projected to be 1.0% and 3.8%, respectively, implying an estimated 2.8% increase in the GDP deflator for 2025.

Analyst Park also projected that if the terms of trade continue to improve in 2026, driven by rising export prices for semiconductors and a continued decline in international oil prices, external factors will exert further upward pressure on the GDP deflator. In this case, even if overall economic conditions do not improve significantly, the higher nominal growth rate could have a positive impact on national tax revenues and other areas.