The Korea Herald


Cheap Korean currency likely to fan inflation

By Kim Yon-se

Published : March 9, 2022 - 15:19

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Price tags of agricultural products are seen at a large discount chain in Seoul on Friday. (Yonhap) Price tags of agricultural products are seen at a large discount chain in Seoul on Friday. (Yonhap)
SEJONG -- Concerns are growing over the possibility that the nation’s import prices will further shoot up in the wake of the continuously weakening Korean currency against the US dollar amid the Ukraine-Russia war.

The unfavorable scenario has come to the fore amid the recent situation that import prices of raw materials, including crude, had already sharply climbed over the past several months. According to Statistics Korea, import prices grew 30.1 percent in January on-year.

Amid investors’ preference in safe havens, the dollar closed at 1,237 won on Tuesday, up 9.9 won from a trading session earlier. This marked the first time in 21 months that the dollar trades at over 1,230 won.

Given that the dollar prices ranged between 1,100 won and 1,160 won in the first half of 2021, the cheap won could possibly undermine the purchasing power of Korean businesses and households, researchers say.

Prices of international crude have surpassed $120 per barrel. As of Tuesday, Western Texas Intermediate crude reached $123.7 per barrel, which was the highest in more than 13 years since August 2008.

The price of Dubai crude, which accounts for the largest portion of Korea’s oil imports, also surged to $122.53 per barrel on Tuesday, compared to $75.66 at the end of 2021.

Some global analysts predict the crude prices would reach $150 in the wake of the international community’s economic and financial sanctions against Russia, which invaded Ukraine.

A researcher of the Korea Institute for International Economic Policy was quoted by a new provider, as saying that “the trend of spiraling oil prices in unavoidable, though the US’ ban on imports of Russian crude has already been reflected in prices.”

Crude prices will further climb when some countries join the import ban, which will deal a severe blow to the local consumer prices, he said.

There is a high possibility that the rising prices of greenback and crude will further elevate import prices in Korea, which would aggravate cost burden of local manufacturers.

A brokerage firm-based researcher issued the possibility that higher burden of businesses will bring about hikes in retail products and possibly fan inflationary pressure.

He said that “consumer prices will feasibly touch the 4 percent mark for the first time in a decade since 4.2 percent in December 2011.” In February, the growth in consumer prices posted 3.7 percent on-year.

A weakening purchasing power of businesses and households will also have the effect of restricting growth in gross domestic product and per capita national income.