As Oil Prices and Exchange Rates Rise... Import Prices Rebound After 3 Months

October Import Prices Rise 2.2%, Export Prices Increase 1.7%
Oil and Exchange Rate Rise Lead to Rebound After 3 Months
Import Prices Likely to Continue Rising in November as Exchange Rate Uptrend Persists

Last month, import prices turned to an upward trend after three months as international oil prices and the won-dollar exchange rate rose simultaneously. With the won-dollar exchange rate showing a sharp increase, the possibility of further rises in import prices has also grown. Since import prices affect consumer prices with a time lag, there are concerns that the recently stable inflation could be stimulated.

According to the "October Export and Import Price Index and Trade Index (Provisional)" released by the Bank of Korea on the 13th, import prices rose 2.2% month-on-month last month. Import prices had fallen for two consecutive months through August and September but showed an upward trend again after three months. The increase in October was the highest in six months since April.

Last month, import prices rose as international oil prices and the won-dollar exchange rate increased together. According to the Bank of Korea, the average Dubai crude oil price in October was $74.94 per barrel, up 1.9% from the previous month. When oil prices rise, crude oil import prices increase, usually pushing up import prices. By detailed items, import prices rose mainly for minerals and chemical products, including crude oil by 3.9%, thermal coal by 6.4%, naphtha by 3.4%, and refined aluminum products by 5.7% compared to the previous month.

There was also an exchange rate effect. The average won-dollar exchange rate in October was 1,361.0 won, up 2.0% from the previous month. When the exchange rate rises, the value of the won falls and the dollar rises, making imported goods more expensive. Since the won-dollar exchange rate has continued its sharp rise this month and surpassed 1,400 won, the upward trend in import prices is likely to continue in November as well.

Lee Moon-hee, head of the Price Statistics Team at the Bank of Korea's Economic Statistics Bureau, explained, "Import prices in October rose mainly due to the increase in crude oil, driven by the rise in international oil prices and exchange rates. Although oil prices have slightly declined since November, the exchange rate is rising, which could affect import prices going forward."

Export prices in October were also affected by the rise in oil prices and exchange rates. Export prices rose 1.7% month-on-month in October, marking a rebound after three months, similar to import prices. Coal, petroleum products, and chemical products, which are heavily influenced by oil prices, mainly increased. By detailed items, diesel rose 6.8%, xylene 4.4%, and silver bullion 10.1%.

Excluding the exchange rate effect, on a contract currency basis, import prices rose 0.7% and export prices rose 0.1% month-on-month in October.

The October export volume index, which shows the fluctuation in exports and imports, rose 5.7% year-on-year due to increases in computers, electronics and optical equipment, and chemical products, while the export value index rose 6.1%. During the same period, the import volume index rose 5.9% due to increases in machinery and equipment, computers, electronics and optical equipment, and the import value index rose 2.3%.

The October net barter terms of trade index rose 3.9% overall, as import prices fell by 3.4% and export prices rose by 0.3%. The net barter terms of trade index measures the quantity of goods that can be imported with one unit of export revenue.

During the same period, the income terms of trade index rose 9.8%, as both the export volume index (5.7%) and the net barter terms of trade index (3.9%) increased. The income terms of trade index measures the quantity of goods that can be imported with total export revenue.