As the won-dollar exchange rate continues to soar, food prices are on alert. With the prices of imported raw materials such as flour and coffee taking a direct hit from the stronger dollar, there are concerns that the upward trend in food prices could continue next year.
According to the Bank of Korea's economic statistics system on the 24th, last month's import price index rose 2.6% from the previous month, marking a fifth straight month of gains. This is the largest increase in 1 year and 7 months since April last year. During the same period, the average won-dollar exchange rate climbed from the 1,380-won range in August to the 1,450-won range in November, directly pushing up the prices of imported raw materials. On this day, the won-dollar rate opened at 1,484.9 won, up 1.3 won from the previous day, and closed at 1,453 won.
A higher exchange rate is passed through to consumer prices with a time lag. The consumer price index already rose 2.4% in October and November, and the living cost index climbed to 2.9%, adding to the burden of perceived prices.
Coffee has been hit the hardest. With international green coffee bean prices staying high and the exchange rate rising, import cost pressures have expanded significantly. According to the Bank of Korea, with 2020 set at 100, last month's coffee import price index stood at 307.12 in dollar terms and 379.71 in won terms. In dollar terms, import prices roughly tripled, while in won terms the rise was larger as the exchange rate effect compounded.
Because coffee relies entirely on imported green beans, swings in international prices and the exchange rate directly affect domestic prices. In practice, franchise coffee chains are adjusting prices one after another. EDIYA COFFEE increased the basic beverage size this month from 14 ounces (414 ml) to 18 ounces (532 ml), while raising the base prices of 31 beverages by an average of 297 won. Banapresso will also raise the takeout price of iced Americano by 200 won to 2,000 won from 1,800 won starting in January next year.
Earlier, starting with Starbucks, HOLLYS, and Paul Bassett in January, major coffee brands such as COMPOSE COFFEE in February and A TWOSOME PLACE in March raised prices in succession.
This trend is not confined to coffee. Last month, the beef import price index was 129.99 in dollar terms and 160.57 in won terms. In dollar terms, it rose about 30%. In won terms, the increase was larger due to the exchange rate effect. During the same period, corn rose 6% in dollar terms but 35% in won terms, and wheat saw a slight drop in dollar terms but a 22% rise in won terms. The stronger dollar is effectively pushing up perceived prices across imported raw materials.
Food and retail sectors, which are highly dependent on imported raw materials, have already felt the impact of the strong dollar. As a result, dozens of food companies raised product prices in the first half of this year alone. Nongshim increased ex-factory prices for 17 brands of ramen and snacks by an average of 7.2%, and Ottogi also raised ex-factory prices for 16 ramen products by an average of 7.5%.
The trend of price hikes is expected to continue next year. Starting Jan. 1 next year, convenience store private label (PB) product prices will rise. 7-Eleven decided to raise prices on about 40 PB items, including snacks and beverages, by up to 25%. "Nunettine" will go from 1,200 won to 1,500 won, and "Good Corn Chips" will rise from 1,000 won to 1,200 won. "Gourmet Butter Popcorn" will also increase from 1,800 won to 2,000 won. GS25 also plans to raise the prices of "Movie Theater Popcorn" and "Butter Garlic Popcorn" from 1,700 won to 1,800 won.
However, with local elections in June next year, the government's price management stance—by agencies such as the National Tax Service and the Fair Trade Commission—could tighten, deepening industry concerns. Input costs are rising, but raising prices could bring pressure from both the government and public opinion.
The National Tax Service said the previous day that it will conduct tax audits on tax evaders who increased consumer burdens and reaped unjust profits through methods such as price collusion, failing to reflect cost declines, and shrinking product sizes. Nine franchise companies are included among those surveyed.
A food industry official said, "If the exchange rate stays high, input cost pressures are unavoidable, but for the time being we have no choice but to be cautious about price adjustments," adding, "From the corporations' perspective, the burden is growing between costs and policy."