Rising Raw Material Prices and Falling Semiconductor Prices... "Trade Deficit Widens" (Comprehensive)

Imported Prices Rise 1% Leads to Producer Prices Up 0.13%p
Russia-Ukraine War Crisis and Global Supply Chain Disruption, Oil Price Surge Causes

[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 surge in raw material prices. This is interpreted as reflecting phenomena such as the Russia-Ukraine war crisis and global supply chain disruptions.

As producer goods prices are expected to continue soaring for the time being due to the rise in international raw material prices, there are calls to extend the fuel tax reduction period and support the smooth procurement of international raw materials.

According to the Korea Economic Research Institute of the Federation of Korean Industries on the 24th, 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%.

The institute noted that the January import price increase rate was lower than last year's annual increase rate of 21.1%, and pointed out that the recent trade deficit's main cause was the widening gap between the import price increase rate and the export price increase rate rather than the import price increase 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. The institute explained that the trade balance turned to a deficit because 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 rose 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 crude oil prices, the largest import item, and semiconductor prices, the largest export item. Crude oil prices have recently exceeded $100 per barrel due to the Ukraine crisis and other factors, while semiconductor prices have been declining since October 2021. The institute pointed out that South Korea depends on imports for raw materials but focuses on highly competitive manufactured goods for its main exports, making it difficult to pass on raw material price increases to export product prices.

It was also noted that a widening gap between import and export price increase rates could negatively affect the trade balance. A representative example is the trade deficit in 2008. In the mid-2000s, 2008 was the only year with a trade deficit, and the gap between export and import price increase rates reached 12.6 percentage points, the highest in the mid-2000s.

Lee Tae-gyu, Senior Research Fellow at the Korea Economic Research Institute, said, "Since the gap between export and import price increase rates is likely to widen compared to last year, we must 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.