The rapid decline in oil price in April has begun to be reflected in import prices. A strong downward pressure on consumer prices is inevitable for a while in that it will be reflected in domestic prices with some time interval. Last month, consumer prices rose 0.1 percent, which means a decrease in consumer prices is likely to start this month. Deflationary concerns are rising with the economy remaining sluggish and consumer prices moving in that direction.
The Bank of Korea announced on May 18 that import prices dropped 14.1 percent year on year last month. The prices began to fall in February in the wake of COVID-19 and the pace of the falling is increasing.
This is because of international oil prices. The pandemic resulted in declines in oil demand and price. For instance, the average monthly price of Dubai crude oil per barrel dropped from US$64.32 to US$20.39 from January to April.
The rapid decline in import prices is likely to fuel deflation in the South Korean economy. The import prices fell 7.9 percent year on year in March and the consumer prices edged up 0.1 percent in April. With the April import prices having dropped 14.1 percent, this month’s consumer prices are predicted to fall.
The consumer prices are unlikely to rebound for the time being given the current oil price movement. In addition, low prices are likely to continue in that the pandemic is seriously affecting the demand side of the global economy.