[Weekly Review] Soaring Inflation Over 3% Makes Dining Out Daunting... Trade Surplus Shaken by Ukraine Crisis

February Consumer Prices Up 3.7% YoY... February Trade Balance Turns Surplus but Concerns Over Ukraine Crisis
US Includes Korea in FDPR Exemption Countries... Per Capita GNI Surpasses $35,000 for First Time in 4 Years

[Image source=Yonhap News]

[Asia Economy Sejong=Reporter Kwon Haeyoung] As international oil prices and dining-out costs soar, domestic consumer prices in February maintained a 3% range increase for the fifth consecutive month. Concerns are rising that oil prices, which surged to $115 per barrel due to Russia's invasion of Ukraine, will further push up prices in the future. Although the trade balance escaped the deficit swamp after three months, there are worries that the effects of the Ukraine crisis may become visible with a time lag. The United States strengthened export controls against Russia, and unlike other allied countries, South Korea initially did not receive an exemption from export controls but managed to secure the exemption after consultations with the U.S. Per capita Gross National Income (GNI) surpassed $35,000 for the first time in four years after breaking through $30,000.

◆Consumer prices remain in the 3% range for five consecutive months due to soaring oil and dining-out costs＝According to Statistics Korea on the 5th, the overall consumer price index in February was 105.30 (2020=100), up 3.7% compared to the same month last year. This marks the fifth consecutive month with a 3% range increase following October 2021 (3.2%), November (3.8%), December (3.7%), and January this year (3.6%).

Core inflation, which excludes seasonal factors and temporarily fluctuating prices of agricultural products and petroleum products to show the underlying trend, rose 3.2% compared to a year ago, reaching the highest level in 11 years and 2 months since December 2011 (3.6%).

Last month, although the price increase of agricultural and livestock products slowed, petroleum products surged by 19.4%, and dining-out costs jumped by 6.2%, driving overall price increases. By item, service prices rose 3.1% year-on-year. Among them, dining-out increased by 6.2%, marking the largest rise since December 2008 (6.4%). Rent rose by 2.1%, with jeonse (long-term deposit rent) up 2.9% and monthly rent up 1.1%, both the highest increases since August 2017 (2.9%) and May 2014 (1.1%), respectively. Agricultural, livestock, and fishery products rose 1.6%, industrial products 5.2%, and electricity, gas, and water 2.9%.

Oh Woonseon, Director of Economic Trend Statistics at Statistics Korea, analyzed, "The consumer price index in March may worsen further due to rising international oil and grain prices, global supply chain disruptions, and the Ukraine crisis. The possibility of a slowdown in industrial product price increases is low, and many items in personal services such as dining-out continue to rise, sustaining the upward trend."

[Image source=Yonhap News]

◆Trade balance turns to surplus after three months, but alert to the impact of the Ukraine crisis＝According to the 'February 2022 Export-Import Trends' announced by the Ministry of Trade, Industry and Energy, South Korea's exports last month totaled $53.91 billion, up 20.6% compared to the same month last year. Imports during the same period were $53.07 billion, up 25.1%. As a result, the trade balance, which had recorded deficits for two consecutive months in December (-$452 million) and January this year (-$4.89 billion), turned to a surplus of $840 million after three months, escaping the deficit.

Last month's imports hit a record high due to soaring energy prices, but daily average exports ($2.696 billion) achieved a monthly record high, driving the improvement in the trade balance. Exports of key products such as semiconductors and petroleum products increased significantly, leading to the surplus turnaround. Semiconductor exports reached $10.38 billion, surpassing $10 billion for 10 consecutive months and achieving the first-ever February record over $10 billion. Raw material processed products such as petrochemicals (24.7%), petroleum products (66.2%), and steel (40.1%) all recorded growth rates above 20%.

However, the industry expects the impact of the Ukraine crisis to gradually become visible. Rising energy prices, including international oil prices, have significantly increased imports, and global trade contraction may hurt exports. In fact, West Texas Intermediate (WTI) crude oil surpassed $115.68 per barrel on the 4th (local time), marking the highest level in over 13 years.

Deputy Prime Minister and Minister of Economy and Finance Hong Namki said on Facebook on the 1st, "There is a high risk that the impact of the Russia-Ukraine crisis will become visible in export indicators with a time lag." He added, "Considering the rapidly changing severe external conditions, exports cannot be taken for granted. Attention is needed to the recent trend of increasing raw material import shares due to rising raw material prices."

[Image source=Yonhap News]

◆U.S. includes South Korea in FDPR exemption countries... Per capita GNI surpasses $35,000＝The United States has decided to exempt South Korea from the Foreign Direct Product Rule (FDPR) export controls imposed to sanction Russia for its invasion of Ukraine. FDPR prohibits the export of products using U.S. technology or software even if they are third-country products. Initially, South Korea was excluded from the FDPR exemption list, unlike 27 countries including the European Union (EU), Australia, Canada, Japan, New Zealand, and the United Kingdom.

The Ministry of Trade, Industry and Energy announced in a press release the day before, "In negotiations between Korea and the U.S., the U.S. evaluated that Korea's implementation of export controls against Russia is well harmonized with the international community's standards and agreed to include Korea in the FDPR exemption countries related to Russian export controls." It added, "The U.S. side confirmed plans to publish Korea's inclusion in the FDPR exemption list in the official gazette within days. The government emphasized that with this FDPR exemption decision, Korea will implement additional export control measures at a level similar to the U.S. and the international community."

Additionally, South Korea's per capita GNI surpassed $35,000 for the first time last year. According to the '2021 Q4 and Annual National Income (Provisional)' statistics released by the Bank of Korea, last year's per capita GNI was $35,168, a 10.3% increase from $31,881 in 2020. Per capita national income is the total income earned by citizens domestically and abroad divided by the population, serving as an indicator of the standard of living. After first entering the $30,000 range in 2017 with $31,734, it recorded $33,564 in 2018, $32,204 in 2019, and $31,881 in 2020, rising to the $35,000 range after four years. This is due to economic recovery after COVID-19 and the decline of the won-dollar exchange rate.

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