"We judge that momentum behind domino price increases has been building recently," a Bank of Korea official said on Sept. 27. So far this year, more than 30 companies have announced price increases or disclosed specific plans for items included in the consumer price index (CPI), including coffee, tires, clothing, convenience store goods and dining out — approaching last year's annual preliminary figure of 32. In the franchise coffee sector, The Venti raised prices of major beverages by 100 to 500 won in the first half of this year, followed by Mega MGC Coffee, which raised prices on three items by 200 won each in June, and Mammoth Coffee, which raised the price of iced americano and other drinks by 200 won in August.
What the central bank is watching is not so much individual price increases as how quickly one company's price adjustment spreads to competitors and other product categories. Price hikes driven by rising costs can serve as a signal to competitors that they too can raise prices, producing a chain of adjustments. "Price increases are being monitored recently, centered on clothing and food," the Bank of Korea official said. "It appears to reflect heavier burdens from raw material costs such as naphtha and from transportation costs." Yang Joon-suk, an economics professor at Catholic University, said, "Whether other companies' prices rise is also a fairly important variable. When someone raises prices out of necessity, everyone raises them together."
The price increases are already showing up in official inflation data. After Coca-Cola Beverage raised its shipment prices in August, inflation for carbonated drinks nearly doubled to 4.8% in August from 2.4% in July.
Volatility in the exchange rate and international oil prices is also increasing. The won-dollar rate has swung sharply, falling to the 1,340-won range in early September, surging to the 1,380-won range in mid-month and then easing back to the 1,350-won range. In global markets, forecasts of a stronger dollar are re-emerging, driven by rising U.S. Treasury yields and the possibility of further rate increases by the Federal Reserve. Morgan Stanley recently revised its earlier weak-dollar forecast, projecting the dollar index (DXY), which tracks the greenback against six major currencies, at 104 by mid-2027.
Oil prices are also swinging widely with developments in the Middle East. Dubai crude spiked to $128 a barrel on Sept. 16 before retreating to around $100. In its August economic outlook, the Bank of Korea assumed second-half oil prices of $84 a barrel on a Brent basis, but assumed up to $91 under a scenario of worsening Middle East conditions. In a pessimistic case in which Middle East tensions drag on, it estimated Brent would rise to $95 in the second half, lifting consumer inflation by 0.1 percentage point this year and 0.4 percentage point next year above the baseline forecast.
The result is an environment in which pressure on companies to raise prices could intensify, as higher raw material and transportation costs combine with oil price and currency volatility. If one company's increase spreads to competitors, rising costs may not stop at individual items but could feed through to prices across the board. What the central bank is watching most closely is the risk that repeated price increases stoke inflation expectations, amplifying the second-round effects of the cost shock. A senior official at a state-run research institute said, "Second-round effects can emerge when inflation expectations are unstable," adding that it is necessary to watch whether price increases stir those expectations.
