Recently, international oil prices and the won-dollar exchange rate have moved in opposite directions, resulting in a neutralizing effect on consumer prices.
Jang Min, a senior researcher at the Korea Financial Research Institute, noted on the 8th in a report titled "The Impact of Recent Changes in External Conditions on Consumer Prices" that, as a result of estimating the effects of international oil prices and the exchange rate on consumer prices, international oil prices (3-month moving average, based on Brent crude) fell by 16.4% compared to the same period last year, thereby lowering consumer prices by 0.3 percentage points.
The won-dollar exchange rate (3-month moving average) rose by 7.8% compared to the same period last year, increasing consumer prices by 0.3 percentage points.
According to the report, rising import prices are expected to increase producer prices over the next six months, and the increase in producer prices will, with a lag, raise consumer prices. The price fluctuations of import prices converted to won are affected by dollar-based import prices and the won-dollar exchange rate.
Oil prices, which have the greatest impact on import prices, are on a downward trend due to a decline in global trade resulting from the economic policies of former President Trump and the potential for a global economic recession.
Brent crude oil prices fell from $78.19 per barrel in January to $66.93 in April. Oil prices for May and June also decreased compared to the same month last year. The won-dollar exchange rate, which surged to the upper 1400 won range due to domestic political instability last year, fluctuated within the 1400 won range earlier this year and only dropped to the 1300 won range last month.
Jang noted, "Amid the increased uncertainty in the global economy and ongoing geopolitical risks, there is potential for expanded volatility in economic sentiment and capital flows, even with temporary shocks," and added, "There is a possibility that the rapid changes in the direction of oil prices or the exchange rate could have unforeseen effects on prices."
He further explained, "Policy authorities need to closely monitor the trends of global factors affecting prices in the future, while carefully guiding policy direction and market expectations."