Producer Prices Turn Up After Four Months... Concerns Over 'International Oil Prices and Agricultural Products'

Agricultural Prices Surge Due to Heavy Rainfall
Impact of Vacation Season and Rising International Oil Prices
Upward Pressure Expected on Consumer Prices Ahead

Recently, with the rebound of international oil prices and agricultural product prices, domestic producer prices have turned upward for the first time in four months.

According to the 'July Producer Price' data released by the Bank of Korea on the 24th, producer prices last month rose by 0.3% compared to the previous month. After consecutive declines in April (-0.1%), May (-0.4%), and June (-0.2%), prices rose again for the first time in four months.

Due to the base effect from last year's sharp rise in oil prices, producer prices fell for two consecutive months compared to the same month last year (-0.2%), but the decline narrowed compared to the previous month (-0.3%).

The sharp rise in international oil prices, influenced by production cuts by major oil-producing countries and expectations of a soft landing for the U.S. economy last month, is interpreted as having contributed to the price increase.

In addition, heavy rains caused a significant rise in agricultural product prices, and with the vacation season, prices for services such as food and accommodation also increased, leading to an upward trend in producer prices compared to the previous month.

By item, agricultural products (10.6%), livestock products (0.8%), coal and petroleum products (3.7%), transportation services (0.9%), and restaurant and accommodation services (0.5%) rose. On the other hand, seafood, affected by the issue of Japan's contaminated water discharge, fell by 4.2%, chemical products (-0.6%), and residential electricity (-12.7%) also showed a downward trend.

The domestic supply price index, which measures price changes including imported goods, fell by 0.3% compared to the previous month, significantly narrowing the decline from June (-1.4%). Raw materials (-1.4%) and intermediate goods (-0.5%) decreased, but final goods (0.4%) increased.

The total output price index, which adds export goods to domestic shipments, rose by 0.1% compared to the previous month. Although manufactured goods (-0.2%) declined, agricultural, forestry, and fishery products (4.6%) and services (0.3%) increased.

Since producer prices affect consumer prices with a time lag, they can act as a factor for future consumer price increases.

Yoo Sung-wook, head of the price statistics team at the Bank of Korea, explained, "It is difficult to quantify because producer prices and consumer prices have different item weightings, but since international oil prices and agricultural product prices are reflected together, they can influence (consumer price increases)."

However, as international oil prices and raw material prices, which had been soaring recently, are showing slight declines, producer prices may regain stability from next month onward.

Concerns about deflation in China, the world's second-largest economy, and forecasts of a slowdown in the U.S. economy due to the possibility of additional interest rate hikes by the U.S. Federal Reserve (Fed) have caused international oil prices to falter.

Mr. Yoo said, "Since producer prices have just slightly risen compared to the previous month, we need to observe the trend further to determine the direction."