"The Cause of Raw Material Price Increase is 'Global Factors'... High Inflation to Persist for a Significant Period"

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jeong] Recently, the rise in raw material prices has been driven by global factors such as global liquidity, economic conditions, and global supply chain situations. Therefore, even if the Ukraine crisis eases, it is expected that the overall upward trend in raw material prices will continue.

On the 28th, the Bank of Korea stated in its report "Analysis of the Impact of Raw Material Price Fluctuations on Inflation" that "if the rise in raw material prices is transmitted to inflation expectations, the recent high inflation trend is likely to persist for a considerable period."

Fluctuations in raw material prices can be explained by global factors such as global liquidity, economic conditions, and global supply chain situations; commodity group factors such as crude oil and grains; and individual commodity factors such as Dubai crude oil and U.S. corn.

Kim Chan-woo, head of the Price Research Team at the Bank of Korea’s Research Department, said, "As a result of decomposing raw material price fluctuations into ▲global ▲commodity group ▲individual commodity factors, it was analyzed that a significant portion was caused by global factors, that is, factors affecting overall raw material prices. Before the 2000s, commodity group factors had a greater influence, but since the 2000s, the influence of global factors has greatly expanded, and after the COVID-19 crisis, that influence has further strengthened."

He added that global factors were mainly caused by the worldwide expansion of liquidity, and after the COVID-19 crisis, the impact of global supply bottlenecks was added. However, the report explained that attention should be paid to the possibility that the contribution of individual commodity factors has somewhat increased recently due to the sharp rise in prices of some raw materials such as crude oil and natural gas caused by the Ukraine crisis.

Kim said, "Analyzing the impact of raw material price fluctuations by each factor on inflation, the rise in raw material prices caused by global factors had a greater and longer-term effect on inflation and inflation expectations compared to those caused by commodity group factors," and "the impact of recent raw material price increases due to global factors on inflation and inflation expectations is gradually expanding."

He added, "Even if geopolitical risks ease, there is concern that the upward trend in raw material prices will be transmitted to inflation expectations, causing the high inflation trend to persist for a considerable period."