The Bank of Korea Says "Rising Raw Material Prices Increase Global Inflationary Pressure"

The Bank of Korea Announces 'Impact of Rising Raw Material Prices on the Chinese Economy'

[Asia Economy Reporter Jang Sehee] There is a forecast that rising raw material prices will have a negative impact on the Chinese economy. Additionally, it is expected that the increase in China's export prices will heighten global inflationary pressures.

On the 3rd, the Bank of Korea stated in its 'Overseas Economic Focus' report, "The rise in raw material prices can negatively affect the Chinese economy through various transmission channels and will act as an inflationary burden on the global economy." It also emphasized, "Given potential changes in China's domestic policies and the global push for eco-friendly policies, volatility in the international raw material market may increase, necessitating continuous monitoring."

The report analyzed that rising raw material prices will increase production costs, especially in manufacturing, thereby weakening profitability. This cost increase is passed on to producer prices, export prices, and consumer prices, which in turn slows domestic and foreign demand, negatively impacting growth.

In particular, it is expected to have a negative effect on industrial production. Using a VAR model, the Bank of Korea estimated that a 10% increase in oil prices leads to about a 0.18 percentage point decrease in China's industrial production after approximately two quarters. In reality, due to the sharp rise in raw material prices and associated cost burdens, manufacturing profits have been continuously declining since peaking in May.

Profitability in upstream industries and small and medium-sized enterprises has also significantly deteriorated. It was analyzed that industries highly dependent on raw materials, such as automobiles and shipbuilding, face concerns over worsening profitability.

On the other hand, while rising raw material prices reduce households' real purchasing power, the impact appears to be limited. Although producer prices are significantly affected, the influence on consumer prices is relatively constrained.

Rising raw material prices negatively affect exports through increased export prices; however, the recovery in global demand largely offsets this impact. The Bank of Korea explained that the rise in China's export prices is a factor that increases global inflationary pressures.

Notably, China has contributed to the global low-price environment through cheap labor costs, but going forward, labor supply reductions due to low birth rates and aging, as well as wage increases, may act as global inflationary pressures.

The Bank of Korea emphasized, "The rise in international raw material prices is expected to negatively affect exports through reduced profitability of Chinese companies and increased export prices," and added, "More attention should be paid to the fact that rising international raw material prices can increase global inflationary pressures through the rise in China's export prices."

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