'Oh, Prices Are Rising Again!'... The Precarious 4th Quarter of the Korean Economy

Producer Prices Hit Record High for 6 Consecutive Months
Inflation Concerns... Interest Rate Hikes Inevitable

Due to the rise in international oil prices, gasoline prices at gas stations in Seoul have increased for the fourth consecutive week, with prices exceeding 2,000 won on the 17th. Photo by Yoon Dong-ju doso7@

[Asia Economy Reporter Jang Sehee] Amid the recent continued rise in international oil prices and other raw material costs, an analysis suggests that inflationary pressures will increase not only on the supply side but also on the demand side, linked with consumption in the upcoming With-Corona era.

According to the Ministry of Economy and Finance on the 23rd, the consumer price inflation rate this month is expected to reach the 3% range compared to the same period last year. If the consumer price inflation rate hits the 3% range, it will be the highest increase in over 10 years since February 2012 (3.0%). Currently, the consumer price inflation rate has remained in the 2% range for six consecutive months, from 2.3% in April to 2.5% in September.

In fact, the Producer Price Index (PPI), a leading indicator of consumer prices, has maintained its 'all-time high' record for six consecutive months. The September PPI stood at 111.13 (2015=100), up 0.2% from the previous month, marking the highest level since statistics began in January 1965. The PPI measures price changes of goods and services supplied by domestic producers to the domestic market and is a factor influencing consumer prices.

The price strength was observed mainly in manufactured goods, electricity, gas, water, and waste. Manufactured goods rose 0.3% from the previous month, continuing an upward trend for 16 consecutive months. Among manufactured goods, coal and petroleum products increased by 2.1%, while primary metals and chemical products each rose by 0.4%. Electricity, gas, water, and waste increased by 2.0%. Energy prices also rose 2.1%, supported by the rise in international oil prices.

With soaring inflation... sufficient grounds for interest rate hikes

Lee Ju-yeol, Governor of the Bank of Korea, is also paying close attention to this inflation trend. After the Monetary Policy Committee meeting on the 12th, Governor Lee stated, "One of the most important considerations in monetary policy is inflation."

Earlier, the World Bank reported, "Energy price increases will only ease after supply chain tensions subside in the second half of next year," adding, "Energy prices could rise more than 80% compared to this year, acting as a severe inflationary factor." In particular, crude oil prices, which rose to $70 per barrel this year, are expected to surge to $74 next year, and some consumer goods prices are predicted to increase even more than this year, marking the largest increase in the past decade.

Experts believe that rising prices will contract the overall economy and affect consumption and investment.

Professor Andonghyun of Seoul National University's Department of Economics said, "When raw material prices rise, companies face higher production costs," adding, "Ultimately, this leads to an increase in final consumer prices." He further explained, "While companies do not always raise or lower prices proportionally to costs, when inflation rises sharply, a significant portion inevitably gets passed on." Professor Ha Jun-kyung of Hanyang University's Department of Economics also noted, "Oil prices are directly linked to gasoline and diesel prices, which are closely related to consumer prices," adding, "They also affect transportation costs and wages, potentially amplifying the shock."

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