As Exchange Rates Rise, Import Prices Increase for 2 Consecutive Months... Will Consumer Prices Be Stimulated?

November Import Prices Rise 1.1%, Won-Dollar Exchange Rate Increase Impact
Exchange Rate Likely to Rise in December Due to Martial Law Situation, Import Prices May Increase
Rising Import Prices Could Affect Consumer Prices

The won-dollar exchange rate rose, causing import prices to increase for the second consecutive month. Since the exchange rate has been surging sharply after the martial law situation, the upward trend in import prices is expected to continue in December, raising concerns about stimulating consumer prices.

According to the "November Export and Import Price Index and Trade Index (Provisional)" released by the Bank of Korea on the 13th, import prices last month rose 1.1% compared to the previous month. Import prices increased by 2.1% in October, marking two consecutive months of growth.

The rise in import prices in November was due to the won-dollar exchange rate significantly increasing last month, influenced by the U.S. presidential election. The average won-dollar exchange rate rose 2.4% from 1,361.0 won in October to 1,393.38 won in November. The strengthening of the dollar was affected by the protectionist policies expected following the election of U.S. President Donald Trump. By detailed item, intermediate goods including primary metal products and coal and petroleum products rose 1.5% compared to the previous month, and consumer goods also increased by 1.5%.

Lee Moon-hee, head of the Price Statistics Team at the Economic Statistics Bureau of the Bank of Korea, explained, "Import prices are usually greatly influenced by international oil prices and exchange rates, but in November, despite a decline in oil prices, prices rose mainly for major imported goods due to the sharp increase in the exchange rate."

The exchange rate has continued its sharp rise this month, so the upward trend in import prices is likely to persist in December. Based on the closing price of weekly trading the previous day, the won-dollar exchange rate was 1,431.9 won, nearly 40 won higher than the average of the previous month. Since import prices affect consumer prices with a time lag, there are concerns that domestic consumer prices may be stimulated in the future.

Export prices in November also rose 1.6% month-on-month due to the exchange rate effect, marking two consecutive months of increase like import prices. By item, manufactured goods including coal and petroleum products and chemical products rose 1.6% compared to the previous month. Agricultural, forestry, and fishery products also increased 1.5%, mainly due to frozen seafood and fruits.

Excluding the exchange rate effect and based on contract currency, export prices in November fell 0.5% month-on-month, and import prices dropped 0.9%.

The November export volume index, which shows the fluctuation in exports and imports, fell 1.4% year-on-year due to decreases in transport equipment and machinery equipment, and the export value index fell 0.3% year-on-year.

The November import volume index rose 0.5% year-on-year due to increases in machinery and equipment, computers, electronics, and optical devices, while the import value index fell 2.7% year-on-year.

The November net barter terms of trade index rose 4.5% year-on-year as import prices (-3.2%) fell but export prices (1.1%) increased. The net barter terms of trade index is a figure that indexes 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 3.0% year-on-year as the export volume index (-1.4%) fell but the net barter terms of trade index (4.5%) increased. The income terms of trade index indexes the quantity of goods that can be imported with total export revenue.