June Producer Prices Flat for First Time in 10 Months Amid Falling Oil Prices

South Korea's producer prices remained flat last month for the first time in 10 months, weighed down by falling international oil prices.

However, the Bank of Korea (BOK) assessed that it is still too early to let down our guard, as the year-on-year growth rate remains high and secondary ripple effects from previous oil price hikes are expected to persist.

According to the BOK, the producer price index for June stood at 130.03 (with the 2020 level at 100), remaining virtually unchanged from the previous month (129.98).

After rising for nine consecutive months from September of last year to May of this year, the index showed flat movement.

Compared to the same month last year, the index rose by 8.6 percent for two consecutive months in May and June, marking the highest growth rate since July 2022 (9.2 percent).

Breaking down the month-on-month changes by category, manufactured products fell 0.3 percent overall; while computer, electronic, and optical products rose 2.4 percent driven by steady demand, coal and petroleum products dropped 5.3 percent and chemical products fell 1.8 percent due to lower international oil prices.

Agriculture, forestry, and marine products rose 0.7 percent, led by livestock products (2.1 percent), while electricity, gas, water, and waste services increased 1.0 percent, mainly driven by industrial city gas.

Among these, the wholesale price of industrial city gas rose as international oil prices, which surged immediately following the Middle East conflict, were reflected in raw material costs with a time lag.

Services edged up 0.2 percent, led by financial and insurance services (2.5 percent) as brokerage commissions rose due to higher stock prices.

By detailed item, high growth rates were seen in computer memory devices (10.3 percent), industrial city gas (10.6 percent), and brokerage commissions (6.0 percent).

On the other hand, sharp declines were recorded in naphtha (-23.5 percent), jet fuel (-23.4 percent), ethylene (-18.9 percent), and international air passenger transport (-6.5 percent).

The domestic supply price index, which measures price fluctuations including imports, rose 0.7 percent from the previous month.

Intermediate goods (0.5 percent), raw materials (2.1 percent), and final goods (0.5 percent) all increased across the board, led by imports.

By use, capital goods (1.2 percent) and consumer goods (0.8 percent) rose, while services remained flat.

The total output index for June, which includes both domestic shipments and exports, also rose 0.4 percent.

Agriculture, forestry, and marine products increased 0.9 percent, and manufactured products rose 0.4 percent.

Regarding the outlook for July, Lee Moon-hee, head of the BOK Price Statistics Team, stated, "International oil prices fell 10.0 percent based on the average Dubai crude price from July 1 to 20 compared to the same period last month." However, he added, "Upward and downward factors are mixed, such as the resumption of armed conflict between the US and Iran and the hike in industrial city gas wholesale prices."

He added, "Although the month-on-month upward trend in producer prices has paused, the secondary ripple effects from the Middle East war appear to be continuing," and "they are expected to act as upward pressure on consumer prices for the time being."
※ Please note: This article was translated by AI and may contain errors.