Export Prices Post Sharpest Drop in 3 Years and 8 Months
August export prices fell 3.7% from the previous month, recording the steepest drop in 3 years and 8 months. The export price index tracks changes in the prices of goods South Korea sells abroad, meaning the prices of products sold overseas fell noticeably, according to export and import price index data released by the Bank of Korea (the central bank) on the 15th. The sharp drop in the exchange rate was the driving factor. Last month, the monthly average price of Dubai crude rose 15.6% to $88.75 per barrel from $76.75 the previous month, but the won-dollar exchange rate fell 6.1% over the same period, from a monthly average of 1,497.4 won to 1,406.3 won.
By category, manufactured goods fell 3.7% from a month earlier. Coal and petroleum products edged up 0.3% on higher oil prices, but most items declined, including chemical products (-5.3%), transport equipment (-5.4%), and computer, electronic and optical equipment (-3.1%). Agricultural, forestry and marine products also fell 2.0%.
The picture looks different in contract currency terms, which strips out the effect of exchange rates. Export prices in contract currencies rose 2.2% from the previous month. "Semiconductor export prices in August fell in won terms but rose in contract currency terms excluding the exchange rate effect," said Lee Heung-hoo, head of the Bank of Korea's price statistics team. He explained, "A falling exchange rate can reduce exporters' profits when converted into won, but it eases the burden on importers and consumers."
Import prices also fell for a third consecutive month. The August import price index stood at 156.31, down 2.4% from July's 160.14. The import price index has been falling for three straight months since dropping 4.2% in June, and the August decline was larger than July's (-1.0%). By category, intermediate goods led the decline, falling 4.0%. Coal and petroleum products rose 3.6%, but chemical products (-6.1%) and primary metal products (-4.2%) posted steep drops. Capital goods and consumer goods fell 4.2% and 4.4%, respectively, while raw materials rose 1.5%, led by mined goods such as crude oil. On a year-on-year basis, however, prices were up 15.6%, maintaining a double-digit upward trend. The pace of increase has been slowing since May (+25.4%).
The August import volume index (in dollars: 126.61) rose 12.0% from a year earlier, driven by increases in computer, electronic and optical equipment and machinery and equipment, while the import value index climbed 23.1%. The export volume index (153.48) rose 25.9% on gains in computer, electronic and optical equipment and chemical products, extending its upward run to 10 consecutive months, and the export value index surged 75.8%.
The terms of trade, which reflect the country's external purchasing power, improved at a record pace. The August net barter terms of trade index rose 27.1% from a year earlier to 119.9, posting the largest gain since statistics began in 1988. The index level was also the highest in 19 years and 4 months, since April 2007 (120.65). This was driven by export prices (up 39.6%) rising far more than import prices (up 9.9%). The income terms of trade index (184.02) also surged 60.0% year-on-year, the largest gain on record. "Both the net barter terms of trade index and the income terms of trade index posted record gains," said Lee Heung-hoo, head of the Bank of Korea's price statistics team, assessing that the terms of trade had improved.
