Producer Price Inflation Rate Drops to 3% Range in March... Will Inflationary Pressure Ease?

Slowing Uptrend for 9 Consecutive Months
0.1% Increase Compared to Previous Month

The producer price index (PPI) inflation rate for March fell to the 3% range compared to the same month last year, indicating a slowdown in inflation. The PPI inflation rate, which recorded 5.1% in January this year, dropped to the 4% range at 4.8% in February for the first time in about two years, and continued to show a 3% range in March, gradually reducing upward pressure.

According to the Bank of Korea on the 21st, the producer price index rose by 0.1% from the previous month last month. It increased for three consecutive months following 0.4% in January and 0.2% in February, but the rate of increase is slowing down. Agricultural products and industrial city gas prices fell, while manufactured goods such as chemical products and services including food and accommodation rose.

Compared to the same month last year, the index rose by 3.3%, maintaining the trend of slowing growth. This is the first time in 25 months since February 2021 (2.1%) that the index has fallen to the 3% range. The PPI inflation rate surged to double digits at 10% in June last year but declined to 9.2% in July, then 7.3% in October, 6.2% in November, 5.8% in December, 5.1% in January this year, 4.8% in February, and 3.3% in March, showing a deceleration in the upward trend.

The index excluding food and energy rose by 0.2% from the previous month. Compared to the same month last year, it increased by 1.9%, showing a slowdown in the rising trend following 3.6% in December, 3.0% in January, and 2.8% in February. The growth rate of the index excluding food and energy also fell to the 1% range for the first time in 26 months since January 2021 (1.5%).

Seo Jeong-seok, head of the price statistics team at the Bank of Korea, explained, "The producer price index has continued to slow down for nine consecutive months since July last year," adding, "Due to the base effect from last year's sharp rise in oil prices, petroleum and chemical products have turned to a decline."

However, the producer price index rose slightly compared to the previous month, showing an increase for three consecutive months. Service fees rose by 0.1% from the previous month, mainly driven by food and accommodation services (0.7%) and business support services (0.1%). Manufactured goods fell by 1.3% in coal and petroleum products but rose by 0.7% in chemical products, resulting in a 0.2% increase from the previous month.

Agricultural, forestry, and fishery products fell by 0.9% from the previous month due to declines in agricultural products (-4.6%) and fishery products (-0.5%). Electricity, gas, water, and waste services fell by 0.4% from the previous month, with industrial city gas prices dropping by 3.8%.

Looking at detailed items, prices of pork (8.8%), chicken (8.5%), ethylene (7.3%), bread (5.5%), and hamburger and pizza specialty stores (3.2%) rose compared to the previous month. On the other hand, prices of strawberries (-31.4%), green chili peppers (-43.2%), kerosene (-6.0%), and frozen mackerel (-5.6%) fell.

Domestic supply prices rose by 0.8% from the previous month last month. Compared to the same month last year, they increased by 2.5%. The rate of increase has also slowed down following 6.3% in December, 4.8% in January, and 4.2% in February.

Seo said, "The producer price index for April is highly uncertain," adding, "Although a reduction in industrial city gas prices is scheduled and natural gas prices have fallen significantly, international oil prices are rebounding, creating mixed upward and downward factors."