Plunging won pushes up import prices

Bank of Korea Governor Rhee Chang-yong / Yonhap

Import prices jumped for the second consecutive month through November, triggered by a rapid weakening of the Korean currency against the U.S. dollar, Bank of Korea (BOK) data showed Friday.

Further complicating the price dynamics are the won's sustained depreciation and volatility, sparked by the recent martial law fiasco.

Notwithstanding the headline inflation tempered to below the central bank target of 2 percent over the past three months, higher import prices could raise domestic prices with a lag of a couple months. This is a major monetary easing negative for the central bank, already stymied by weak export growth prospects and stagnant economy.

According to BOK data, the country’s import price index came to 139.03 last month, up 1.1 percent from the previous month. This marked a back-to-back uptick from 2.1 percent in October.

Intermediate goods, mostly metal input materials and consumer goods, climbed 1.5 percent. Capital goods ticked up 1.2 percent.

Chief among the price drivers was a weakening won that wiped out the positive effects from the declining global oil prices.

The Dubai crude price averaged $72.61 per barrel last month, down 3.1 percent from $74.94 in October.

However, the Korean currency averaged 1,393.38 won last month at the height of Trump trade, 2.4 percent weaker than 1,361 won in October.

The currency sank further below the psychologically significant barrier of 1,400 won, Nov. 13, and has since extended volatile movements.

The won tanked further to 1,442 won the lowest level since October 2022, hours after President Yoon Suk Yeol declared martial law.

“Global oil prices ticked down this month, but the Korean currency is on a downtrend — a mixture of both upward and downward risks,” a BOK official said.

“No clear forecast is feasible in these volatile market conditions.”

Net barter terms of trade, as measured by the export price index relative to the import price index, came to 92.88 last month.