The Bank of Korea: "A 10% Increase in Raw Material Prices May Raise Consumer Prices by up to 0.2%"

On the 9th, the Bank of Korea Reviews 'Background of International Commodity Price Increases and Domestic Economic Impact'

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[Asia Economy Reporter Jang Sehee] A study has found that if raw material prices rise by 10% on a trend basis, consumer prices could increase by up to 0.2 percentage points. However, if the rise is temporary, consumer prices are analyzed to increase by 0.05 percentage points.

According to the Bank of Korea's analysis in the BOK Issue Note on the 9th titled "Background of International Raw Material Price Increases and Their Ripple Effects on the Domestic Economy," the recent sharp rise in international raw material prices appears to be the result of a combination of global economic recovery, supply and demand disruptions in certain items, and speculative demand inflows.

On the demand side, the resumption of manufacturing activities in major countries and item-specific demand factors had an impact. Additionally, supply-side factors such as facility closures due to the COVID-19 shock, international political conflicts, and abnormal weather conditions also played a role.

The Bank of Korea mentioned that the rise in raw material prices ultimately leads to an increase in consumer prices through the import of intermediate goods and the expected inflation path. The increases in crude oil, metal, and grain prices are expected to stimulate domestic consumer prices through petroleum product prices and dining-out expenses, respectively.

The Bank of Korea emphasized, "In the future normalization process of economic activities, the inflationary pressure through producer prices or expected inflation paths may be greater than anticipated, so it is necessary to closely monitor price trends." However, it stressed that the impact on growth is unlikely to be significant as it will be offset by the effects of global economic recovery.

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