South Korea's Import Prices Fall Sharply in June Amid Lower Oil Costs

South Korea's import prices experienced a notable decline in June, falling by 4.4% compared to the previous month. This marks the most significant monthly decrease since December 2022, largely attributed to a sharp drop in international crude oil prices. The average price of Dubai crude oil, a key benchmark, decreased by 23.0% in June from May, significantly influencing the prices of imported mineral products and petroleum goods, which saw reductions of 11.3% and 19.0% respectively.

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The fall in import prices is due to the decrease in international oil prices, leading to price drops centered on mineral products (-11.3%) and coal and petroleum products (-19.0%).

However, the relief from falling import prices is tempered by persistent year-on-year inflation. When compared to June of the previous year, import prices still show a substantial increase of 20.6%. This sustained rise is driven by the higher costs of imported mineral products and chemical goods, alongside oil prices that remain 14.7% higher than a year ago. The Bank of Korea noted that future import price trends remain uncertain due to the volatile won-to-dollar exchange rate and renewed instability in the Middle East.

In contrast, export prices remained largely unchanged from May to June, hovering at the same level. While prices for computers, electronics, and optical equipment saw a rise of 4.5%, this was offset by a 13.9% decrease in coal and petroleum products. Agricultural and fishery products, however, increased by 4.2% month-on-month, led by fruits.

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The won-to-dollar exchange rate is still high, and the situation in the Middle East is becoming unstable again, making it difficult to predict.

Despite the stable month-on-month export prices, the year-on-year growth in export prices has reached an unprecedented level. Export prices surged by 48.9% compared to the same period last year, the highest since March 1998. This dramatic increase is primarily due to significant hikes in prices for computer, electronic, and optical equipment (up 117.4%) and coal and petroleum products (up 56.1%). The widening gap between export and import price increases has led to a sustained improvement in South Korea's terms of trade, with the net merchandise trade ratio rising by 15.6% year-on-year for 36 consecutive months.

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The increase in export prices is due to significant increases in computer, electronic, and optical equipment (117.4%) and coal and petroleum products (56.1%).