Producer Price Index Surges 8 Percent, Highest Since 1998

Prices have skyrocketed.

The Bank of Korea announced Wednesday that the nation’s producer price index (PPI) in March surged 8 percent from a year ago, the biggest increment since November in 1998, when it soared 11 percent. The growth rate of producer prices exceeded the 5 percent level in December 2007, and reached 6.8 percent in February. In March, it soared to 8 percent.

Given the fact that the PPI affects consumer prices with a time lag of one to two months, some experts are concerned that the consumer price index (CPI) will soon rise more than 4 percent. In March, the CPI jumped 3.9 percent from a year ago, exceeding the central bank’s target of 3.5 percent for the fourth consecutive month.

Producer prices surged in March mostly due to soaring international raw material prices and devaluation of the won in relation to the dollar. The Industrial Product Index, which includes food, beverage, tobacco, and oil products, surged 11.2 percent year-on-year in March, recording the biggest increase since November 1998.

Boosted by surging international grain price, biscuit price jumped 24.7 percent, soybean price rose 20.6 percent and snack price increased 8.7 percent. Also, kerosene price jumped 10.4 percent, diesel price increased 5 percent while naphtha price rose 6.9 percent.

The Bank of Korea said, “As long as prices of raw materials increase, the nation’s producer prices will continue to grow sharply.” International raw material prices affect import price, producer price and consumer price, sequentially.

Korea’s central bank also announced that the Imported Raw Materials Price Index in February also jumped 49.4 percent from a year ago, the biggest rise since October 1998.

In terms of international prices of oil and grain, some experts argue that prices should stabilize in the second half of the year. But others predict that international oil and grain prices are unlikely to decline significantly even by the end of the year.

Steadily rising prices put pressure on the government’s economic policies and those in the low-income bracket. Also, there are increasing concerns that stagflation will appear and prices continue to grow amid an economic recession.

Domestic economic think tanks have lowered their predictions for the nation’s economic growth. For example, the Korea Economic Research Institute lowered its forecast for this year’s economic growth rate from 5.1 percent to 4.5 percent.

larosa@donga.com