KCCI "Corporate Production Costs Increased by 8.7% in the First Half of the Year"

The Highest Level Since 2009

Yearly Production Cost Increase Rate Trend. Photo by Korea Chamber of Commerce and Industry

[Asia Economy Reporter Jeong Dong-hoon] The costs incurred by companies for production activities in the first half of this year have surged due to wage increases, rising raw material prices, and a high exchange rate.

According to the report "Estimation and Implications of the Increase in Corporate Production Costs" released on the 21st by the Korea Chamber of Commerce and Industry think tank SGI (Sustainable Growth Initiative), the production costs across all industries in the first half of this year increased by 8.7% compared to last year.

Production costs refer to the expenses companies incur for production activities, and the production cost increase rate is calculated by reflecting the year-on-year changes in key components such as raw materials, exchange rates, and wages.

The production cost increase rate in the first half of this year was the highest since 2009 (10.8%) and was about 4.6 times the average production cost increase rate across all industries over the past 10 years (2011?2021), which was 1.9%.

The report analyzed, "In the second half of the year, the upward trend in exchange rates is expected to continue, and wage increase pressures will grow, so the shock to corporate production costs will persist. Companies facing an uncertain business environment are highly likely to strategically postpone or reduce investment plans this year and focus on risk management."

Among the components contributing to the 8.7% increase in production costs in the first half of this year, wage increases accounted for the largest share at 3.2 percentage points (P), followed by rising raw material prices (3.0%P) and a high exchange rate (2.5%P).

By industry, the manufacturing sector's production cost increase rate (10.6%) was significantly higher than that of the service sector (6.6%).

The report analyzed that manufacturing is more affected by international oil prices, mineral prices, and exchange rate fluctuations than the service sector because it heavily relies on imported raw materials in the production process.

The report suggested that government policies are needed to respond to the sharp rise in corporate production costs, including establishing tailored countermeasures for each production factor, building a public-private risk management response system, supporting corporate productivity improvement, and establishing an industrial base resilient to energy price changes.

Kim Cheon-gu, a research fellow at KCCI SGI, emphasized, "Currently, companies are facing a compounded crisis with global demand slowdown combined with shocks from rising raw material prices, exchange rates, and wages. Even in this complex crisis, efforts for cost innovation to secure cost competitiveness and innovation to maintain sustainability are necessary."

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