"Trade Deficit Widens Due to Export-Import Price Inflation Gap"

While Crude Oil Prices Soar, Prices of Top Export Item Semiconductors Fall

[Asia Economy Reporter Kim Jin-ho] An analysis has emerged suggesting that the trade balance deficit could widen due to the export price increase rate being lower compared to the import price increase rate amid the sharp rise in raw material prices.

The Korea Economic Research Institute (KERI) of the Federation of Korean Industries announced on the 24th that the import price increase rate in January this year compared to the same month last year was 19.6%, while the export price increase rate was 12.4%.

KERI noted that the January import price increase rate was lower than last year's annual increase rate of 21.1%, and pointed to the widening gap between the import price increase rate and the export price increase rate as the main cause of the recent trade deficit rather than the rise in import prices itself.

The gap between export and import price increase rates last month (import price index increase rate minus export price index increase rate) was 7.2 percentage points, significantly wider compared to 3.4 percentage points in 2021. KERI explained that the trade balance turned to a deficit as import prices rose more sharply than export prices.

Last month, import volume increased by 15.5% compared to the same period last year, but export volume only increased by 8.6%, further expanding the trade deficit.

In particular, the biggest factors determining whether there will be a trade deficit this year and its scale were identified as the price of crude oil, the largest import item, and the price of semiconductors, the largest export item.

Crude oil prices have recently exceeded $100 per barrel due to the Ukraine crisis and other factors, but semiconductor prices have been declining since October 2021. KERI pointed out that Korea depends on imports for raw materials, but its main export items are competitive manufactured goods, making it difficult to pass on raw material price increases to export product prices.

They also warned that a widening gap between import and export price increase rates could negatively impact the trade balance. A representative example is the trade deficit in 2008. The gap between export and import price increase rates in 2008, the only year in the 2000s with a trade deficit, reached 12.6 percentage points, the highest in the decade.

Lee Tae-gyu, Senior Research Fellow at KERI, said, "Since the gap between export and import price increase rates is likely to widen compared to last year, we need to prepare for a trade balance deficit," adding, "Efforts such as securing fiscal soundness and improving investment conditions are necessary to prevent a decline in external credibility."

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