Continued Inflation... What Is the Impact of CPI Classification Changes?

Increased Weights for Grocery, Health, and Household Items
May Lead to Further Price Increases in the Future

In the third quarter of this year, domestic food prices in Korea rose by 5.0% compared to the same period last year, marking the fourth highest increase among OECD member countries. According to Statistics Korea and the OECD on the 5th, Korea's food and non-alcoholic beverage prices in the third quarter (July to September) increased by 5.0% compared to the same period last year. Although the prices of agricultural, livestock, and fishery products, collectively known as food prices, stabilized in October, slowing the increase to 1.6%, both agricultural, livestock, and fishery products and processed food prices surged again in November, rising to 6.1%. The photo shows a large supermarket in downtown Seoul on the 5th. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Gong Byung-sun] Amid the ongoing global trend of rising inflation, South Korea's Consumer Price Index (CPI) calculation standards have been changed. Due to this change in standards, prices are expected to rise further in the future.

According to Yuanta Securities on the 25th, prices are still on an upward curve. As of November, the domestic Producer Price Index (PPI) recorded a 9.6% increase compared to the same period last year. Additionally, the core PPI also rose by 8.4% year-on-year, indicating a high level even when excluding volatile items such as food and energy.

There is a concern about the weakening profitability in the production sector as supply prices face relatively higher upward pressure than output prices. Output prices indicate the trend of producers' selling prices, while supply prices show the direction of companies' production costs. If profitability weakens, preparations for a deterioration in corporate investment sentiment are necessary.

The import price appears to have a significant impact on domestic producer prices. Even excluding raw materials from the supply prices of imported goods, if intermediate goods prices rise sharply, it could reduce net exports, which affect future economic growth. Jeong Won-il, a researcher at Yuanta Securities, stated, "The reduction in the trade surplus due to worsening terms of trade is also reflected in export-import performance up to the 20th of this month," adding, "Since the increase in imports is relatively much larger compared to export growth, it is necessary to pay attention to the trade balance in economic trends."

Yuanta Securities emphasizes the need to focus on the impact of the upcoming changes in the composition of the domestic CPI. Typically, items included in the consumer price index are adjusted every five years, and weights are adjusted approximately every three years. According to Statistics Korea on the 22nd, the weights of items such as food, health, and household goods increased, while those of transportation and education decreased. Although the share of sectors with strong administered prices declined, actual living costs such as food and health are now more reflected.

Researcher Jeong explained, "This revision in composition could lead to additional price increases in the future," and added, "In fact, applying the revised estimates shows that South Korea's inflation rate for this year would be adjusted upward by 0.1 percentage points compared to the existing figures."

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