International oil prices have surpassed $100 per barrel, increasing uncertainty surrounding domestic inflation. The rise in crude oil prices is driving up transportation and manufacturing costs, and combined with a recovery in consumer demand due to a semiconductor boom, there are concerns that inflation may persist longer than expected. The delayed reflection of cost burdens in consumer prices, along with potential increases in import costs due to exchange rates and Middle Eastern tensions, adds to the uncertainty.
On October 16, Brent crude for December delivery closed at $109.86 per barrel, a 3.72% increase, marking the highest level since May 19. West Texas Intermediate (WTI) also rose for seven consecutive trading days, reaching $101.41 per barrel. The increase in international oil prices affects not only fuel costs but also logistics and production expenses, which could lead to higher prices for food packaging and consumer goods.
In the United States, rising oil prices are also translating into higher costs for other goods. The Consumer Price Index (CPI) for September rose 0.6% from the previous month and 3.7% year-over-year. Energy prices increased by 5.2%, with gasoline prices surging 9.1%, accounting for more than half of the overall inflation increase. Core goods prices also rose by 0.3%, marking the largest increase this year.
The upward trend in prices has spread to used and new cars, as well as clothing. Ha Geon-hyung, a researcher at Shinhan Investment Corp, noted, “The burden of logistics costs due to rising oil prices is being passed on to other goods. The transfer of costs is likely to be more persistent than the price increases of volatile items, which may limit the downward stabilization of core inflation until the end of the year.”
Companies are also under pressure as they cannot immediately pass on rising costs to consumers. Businesses that have absorbed cost increases due to weakened demand and intensified competition may eventually have to raise prices as profitability declines. Even if international oil prices fall, accumulated cost burdens may prevent immediate reductions in consumer prices.
Exchange rates are another variable. An increase in the value of the won can lower import costs for crude oil and raw materials, but if the won-dollar exchange rate rises again, import costs in won terms will increase even if international oil prices remain stable. If both international oil prices and exchange rates rise simultaneously, the cost burden on companies could increase significantly.
Recent data also highlights rising pressures on certain consumer goods. According to the National Data Agency, the Consumer Price Index for September was 120.43, a 2.9% increase from the same month last year. The index excluding food and energy rose by 2.8%, 0.6 percentage points lower than in August, but the increase in processed food prices rose from 1.5% to 2.1% during the same period. Bread prices also increased by 5.7% compared to the previous year.
The pace at which the semiconductor boom spreads to domestic consumption is expected to influence inflation trends. Improved performance of export companies can lead to increased investment, employment, and wages, enhancing household consumption capacity and aiding domestic recovery. However, if cost burdens persist amid rising demand, companies may find it easier to pass on these increases to selling prices. While a recovery in consumption does not immediately lead to inflation, the combination of supply-side cost pressures could delay price stabilization.
Kim Sang-bong, a professor of economics at Hansung University, stated, “The resolution of the Middle Eastern conflict is the most significant variable affecting prices, but with the U.S. defense budget for 2027 significantly increasing compared to this year, it is uncertain whether the conflict will end soon. Even if the war concludes, if oil facilities have been destroyed, stabilizing oil prices may not happen quickly.”
* This article has been translated by AI.
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