A promotional sign showing Americano prices hangs at a Mammoth Coffee outlet in Seoul. Yonhap News
The Bank of Korea is closely watching a wave of domino price increases among retailers, food and beverage makers and other companies whose products feed directly into consumer prices. The central bank sees a risk that inflationary pressure could last longer than expected if one company’s price hike spreads to its competitors in a chain reaction. Recent high volatility in international oil prices and the won-dollar exchange rate could also add to upward price pressure in the fourth quarter, according to the analysis.
A BOK official said on the 27th that “we judge that the momentum behind domino price increases has been building recently.” So far this year, more than 30 companies have announced price increases or disclosed specific plans to raise prices in categories included in the consumer price index (CPI), such as coffee, tires, clothing, convenience stores and dining out — approaching last year’s preliminary annual total of 32. In the franchise coffee sector, The Venti raised prices on major drinks 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 prices on iced Americanos and other drinks by 200 won in August.
What the BOK is watching is not the price increases at individual companies but how quickly one company’s price adjustment spreads to competitors and to other product categories. If a price increase driven by rising costs serves as a signal to competitors that they too can raise prices, price adjustments can follow one after another. “Price increases are being monitored recently, centered on clothing and food products,” the BOK official said. “This appears to reflect the growing burden of raw material costs such as naphtha and of shipping costs.” Yang Junsok, a professor of economics at the Catholic University of Korea, said: “Whether other companies’ prices go up is also a considerable variable. When one company has no choice but to raise prices, that is when everyone raises them together.”
The price increases are already showing up in actual inflation data. After Coca-Cola Beverage Co. raised its shipment prices in August, the inflation rate for carbonated drinks nearly doubled, rising to 4.8% in August from 2.4% in July.
On top of this, volatility in the exchange rate and international oil prices is increasing. The won-dollar rate has been highly volatile, falling to the 1,340 won range in early September, spiking to the 1,380 won range by mid-month and then easing back to the 1,350 won range. In global markets, forecasts for a stronger dollar are re-emerging against the backdrop of rising U.S. Treasury yields and the possibility of further rate increases by the Federal Reserve. Morgan Stanley recently revised its earlier forecast for dollar weakness, projecting the dollar index (DXY), which measures the currency against six major peers, at 104 by mid-2027.
International oil prices are also swinging sharply in line with developments in the Middle East. Dubai crude surged to $128 a barrel on the 16th before easing to around $100 currently. In its August economic outlook, the BOK assumed second-half oil prices of $84 a barrel on a Brent basis, but assumed as much as $91 under a scenario of worsening conditions in the Middle East. In a pessimistic scenario in which the situation in the Middle East drags on, the central bank estimated that Brent would rise to $95 in the second half, pushing consumer inflation 0.1 percentage point higher this year and 0.4 percentage points higher next year than in its baseline forecast.
The result is an environment in which pressure on companies to raise prices could intensify, with rising raw material and shipping costs compounded by volatility in oil prices and the exchange rate. If one company’s price increase spreads to its rivals, cost increases may not stop at individual items but could spread across the broader price level. What the BOK is focused on in particular is that if price increases are repeated to the point of stirring inflation expectations, the second-round effects of the cost shock could grow larger. A senior official at a state-funded research institute said second-round effects can emerge when inflation expectations are unstable, adding that it is also necessary to watch whether price increases are stirring those expectations.