Prices Look Troubling Next Year... Ministry of Economy and Finance Aims to Manage Living Costs at '1.5%' Next Year

Bank of Korea Announces Export and Import Prices

[Asia Economy reporters Son Seon-hee (Sejong) and Jang Se-hee] The government has projected that the strong inflation, expected to rise by more than 2% this year, will continue into next year. They anticipate a mid-1% increase centered on essential daily necessities with high purchase frequency. Inflationary pressure has shown little sign of easing, with import prices hitting a seven-year high last month.

According to the ‘2022 Performance Plan’ submitted by the Ministry of Economy and Finance to the National Assembly on the 14th, the ministry set the target for next year’s consumer price increase rate for daily necessities at ‘1.50% or below’ and newly established this as a performance indicator related to consumer price management projects.

The consumer price increase rate for daily necessities refers to the trend of the consumer price index for 141 items, including daily essentials with high purchase frequency, out of a total of 460 items subject to overall price management. It is considered an indicator that more realistically reflects consumers’ perception of price changes compared to the overall consumer price index. The daily necessities price index has steadily risen every year since 2015 (base 100), reaching 108.80 last month (a 3.4% increase compared to the same month last year).

The Ministry of Economy and Finance’s internal setting of the daily necessities price index management target at ‘1.50%’ implies that the current inflationary trend may continue through next year. The Bank of Korea has signaled additional interest rate hikes within the year following last month’s increase, indicating that managing inflation will not be easy.

This year’s consumer price index increase rate is already expected to exceed the government’s annual target of 2.0%, leading to criticism that inflation management has failed. Contrary to the ministry’s explanation that prices would stabilize in the second half of the year, inflation remained high at the mid-to-high 2% range in July and August. Ahead of the Chuseok holiday, efforts were made to control prices of major seasonal products, but prices of key items such as eggs and rice were still 15.5% and 13.6% higher, respectively, than the same period last year.

Import and export prices also continued their upward trend. According to the export-import price index announced by the Bank of Korea on the same day, last month’s import price index (base 2015=100) rose 0.6% from the previous month to 120.79. The import price index has increased for four consecutive months, reaching its highest level in 7 years and 4 months since April 2014 (120.89). Compared to the same month last year, it rose 21.6%, marking the largest increase since December 2008 (22.4%). Although international oil prices fell, the recovery in demand from front-end industries such as semiconductors and rising prices of raw materials contributed to the increase.

Export prices also rose for the ninth consecutive month. The export price index increased 1.0% from the previous month to 112.72, reaching its highest level in 8 years since August 2013 (114.17). Compared to the same month last year, it rose 18.6%. The average won-dollar exchange rate rose 1.4% from 1,143.98 won per dollar in July to 1,160.34 won in August, influencing this increase.

Choi Jin-man, head of the Price Statistics Team at the Economic Statistics Bureau, stated, "The rise in import prices continued due to increases in some raw material prices and demand growth. However, the upward trend slowed due to the decline in oil prices."

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