South Korea's producer prices posted their largest gain in three years and 11 months last month as the Middle East conflict drove international oil prices sharply higher. Petroleum-related products recorded their steepest increase in 29 years, since the 1997 Asian financial crisis. Producer prices typically feed into consumer prices with a lag of one to three months, suggesting inflationary pressure will intensify going forward.
The Producer Price Index stood at 125.24 in March (2020=100), up 1.6% from the previous month, the Bank of Korea (BOK) said Tuesday. That was the largest monthly increase in 47 months, since April 2022 (1.6%), shortly after the outbreak of the Russia-Ukraine war. It also marked the seventh straight month of gains since September last year.
Soaring international oil prices caused by the Middle East war pushed up petroleum products, driving the overall producer price index higher.
By category, manufactured goods rose 3.5% from the previous month, led by coal and petroleum products (31.9%) and chemical products (6.7%). The increase in coal and petroleum products was the largest since December 1997 (57.7%). Agricultural, forestry and marine products fell 3.3%, with agricultural goods down 5% and livestock down 1.6%, but the decline was not enough to offset the broader price surge.
Among individual items, naphtha, often called "the rice of industry," jumped 68%, while ethylene rose 60.5%, xylene 33.5%, diesel 20.8% and DRAM 18.9%. Computer memory devices soared 101.4%.
"Oil prices surged and the impact of raw material price increases before March also grew, which will gradually exert upward pressure on producer prices," said Lee Mun-hee, head of the BOK's price statistics team.
Meanwhile, the Korea Development Institute (KDI), a state-run research institute, said a petroleum price ceiling introduced last month in response to the Middle East-driven oil surge lowered the consumer inflation rate in March by up to 0.8 percentage points.
Under the price ceiling, which took effect March 13, the government directly caps the supply prices of refiners. During the final week of the first price ceiling period, the fourth week of March, consumers saved an estimated 460 won per liter on regular gasoline and 916 won per liter on automotive diesel. Assuming gas station prices would otherwise be determined solely by international oil prices, the measure is estimated to have cut consumer inflation by 0.8 percentage points. Given that the government reported a 2.2% consumer inflation rate last month, the rate would have reached around 3% without the ceiling.
KDI said no slowdown in consumption has been observed since the outbreak of the Middle East war. A comparison of credit card spending from January through March this year with the same period over the past three years (2023-2025) showed no significant difference, the institute said.
