'Consumer, Export, and Production' Three Major Price Indicators Rise for 2 Consecutive Months... Inflation Concerns Persist

[Asia Economy Reporter Eunbyeol Kim] "Green onions 53%, chicken 43%, eggs 34%, diesel (9.7%), gasoline (7.5%)..."

Looking at the Producer Price Index (PPI) for January, which rose at the largest rate in four years, it is notable that prices of items felt in everyday life surged sharply. Oil prices and raw material costs continue to rise rapidly, which is expected to impact consumer prices as well.

According to the month-over-month rate of change by item in last month's PPI released by the Bank of Korea on the 19th, prices of agricultural, forestry, and fishery products jumped by 7.9%.

This is the largest increase in two years and five months since August 2018 (8.0%). Livestock products rose 11.8%, and agricultural products increased 7.8%. Prices of manufactured goods also rose by 1.0%.

Other price indicators also rose simultaneously. Looking at last month's export and import price indices, the import price index was 100.74 (2015=100), up 2.8% from the previous month, marking a second consecutive month of over 2% increase. Import prices are a factor that raises consumer prices. Consumer prices also rose 0.8% month-over-month last month.

A moderate rebound in prices can be interpreted as a sign of economic recovery, so it is positive. However, experts explain that the recent price rebound should be noted as being caused more by supply shortages than by demand recovery.

Due to the severe cold wave and heavy snow that hit the U.S. mainland, oil and refining facilities were shut down, and the price increase factors for grains and agricultural products were largely due to supply shortages. The key issue is how much demand will surge when the effects of the COVID-19 vaccine appear and whether supply can keep up with demand.

Professor Emeritus Jeongsik Kim of Yonsei University’s Department of Economics explained, "When COVID-19 stabilizes, the liquidity that was held back along with pent-up demand inflation may act together to cause prices to surge sharply."

The government also expressed concerns about inflation and announced plans to monitor prices by sector. On the same day, Kim Yongbeom, First Vice Minister of the Ministry of Economy and Finance, chaired the ‘6th Innovation Growth Strategy Review Meeting, Policy Review Meeting, Korean New Deal Review Meeting, and 3rd Price-Related Vice Ministers’ Meeting’ at the Government Seoul Office and stated that they would prepare countermeasures for items showing upward trends such as grains and crude oil.

Vice Minister Kim emphasized, "Concerns remain about potential financial stability risks such as the gap between real economy and asset price movements, and inflation worries arise amid debates over abundant liquidity," adding that vigilance will not be relaxed.