Trade price dynamics explain why South Korea’s economy is showing resilience despite energy shocks. Korean exporters have passed on input price hikes to output prices, mostly to intermediate goods such as electronics and petroleum products. With export prices rising faster than import prices, the terms of trade improved quite meaningfully.
Import prices in KRW base rose 20.2% year-on-year in April, a similar pace from the previous month’s 20.5%. Dubai oil prices stabilised slightly in April compared to March, limiting further gains in import prices. For example, CPN (Coal, petroleum, natural gas) prices rose 38% YoY, but decelerated from 49% gain in March. Yet, the price excluding food and energy rose further to 15.6% from 12.6% in the previous month, indicating that price pressures widened.
Meanwhile, export prices rose much faster than import costs. Export prices rose quite sharply, by 41% compared to 29.5% in March. Export price began rising in September, in line with semiconductor price trends. Semiconductor prices rose 156% in April, following a 121% rise in March. Since the beginning of the Middle East conflict, price pressures on refinery/petrochemical products have become more pronounced. Diesel and jet fuel prices rose by 139% and 130% each.
In volume terms, exports rose by 12.4% YoY, while imports fell by 0.1%. We expect both exports and imports to decline in the coming months. But imports will likely contract more quickly than exports, so the overall trade balance should remain positive.