As Oil Prices Fall... Producer Prices Drop for the First Time in 9 Months

Producer Prices Down 0.1% in August Due to Falling International Oil Prices
Price Stability Expected in September Also Due to Oil Price Decline

Producer prices turned negative for the first time in nine months as international oil prices fell. Since producer prices affect consumer prices with a time lag, the possibility of consumer price stabilization in the future has also increased.

According to the Bank of Korea on the 24th, the producer price index for August fell 0.1% compared to the previous month. This is the first time in nine months that the producer price index has declined since recording -0.4% in November last year.

The decline in producer prices, which had been rising throughout the year, was due to a sharp drop in international oil prices last month, causing the price of manufactured goods to fall 0.8% compared to the previous month. Last month, international oil prices, based on Dubai crude, fell 7.4% compared to the previous month. Looking at manufactured goods by detailed items, prices of coal and petroleum products (-4.0%), primary metal products (-1.5%), and chemical products (-0.6%) showed a downward trend.

Lee Moon-hee, head of the Price Statistics Team at the Bank of Korea's Economic Statistics Bureau, explained, "The decline in international oil prices led to a drop in manufactured goods prices, causing the August producer price index to turn downward. Manufactured goods have a significant impact, accounting for as much as 50% of the producer price index weighting."

As producer prices show a downward trend, there is a possibility of a positive impact on future consumer price stabilization. Producer prices are usually reflected in consumer prices with a lag of 1 to 3 months. Lee said, "Since international oil prices also showed a decline in September compared to the previous month, prices are expected to face downward pressure. However, we need to monitor trends in agricultural product prices and adjustments to public utility charges in September."

Other major producer prices, excluding manufactured goods, such as agricultural, forestry, and fishery products (5.3%) and electricity, gas, water, and waste (1.2%), showed an upward trend last month. In the case of agricultural, forestry, and fishery products, agricultural products rose 7.0% and livestock products increased 4.2% compared to the previous month. Food prices rose 2.5%, and fresh food prices increased 9.7% compared to the previous month. Lee stated, "Due to the heatwave in August, vegetable prices rose significantly, causing agricultural product prices to jump."

The domestic supply price index, which measures price changes including imported goods, also fell 0.5% compared to the previous month. Final goods (0.1%) rose, but intermediate goods (-0.8%) and raw materials (-0.3%) declined. The total output price index, which measures price changes including domestic shipments and exports, fell 0.7% compared to the previous month as manufactured goods (-1.5%) declined.

The producer price index for August rose 1.6% compared to the same month last year, slowing down compared to previous months such as May (2.3%), June (2.5%), and July (2.6%).