The prices of major commodities since May 2020 have increased, with their initial rally attributable to a low base effect created by sharp price declines in the wake of the pandemic. Such prices, however, have since steadily increased and exceeded pre-pandemic levels due to pressure from market forces such as rapid demand growth and material disruptions on the supply side. The drivers of the recent hikes in commodity prices include a supply-demand imbalance caused by asymmetrical responses to external shocks such as the coronavirus by economies. Both supply and demand fell early in the pandemic, but advanced economies have since rapidly rebounded thanks to vaccine rollouts, while major commodity-producing countries are scrambling to expand production.

This paper analyzes the commodity price rally, the key drivers behind it, and import trends in Korea to assess the impact of commodity prices on domestic production. The findings show that the rally was driven by supply-side factors such as production cuts rather than demand-side pressure, which had accounted for previous hikes. This rally also differs from precedent in that a series of events affecting supply-and-demand dynamics were triggered by asymmetrical responses to a major external shock. Using an input-output model based on recent hikes in major commodity products, this paper quantified the impact of such increases on production costs across industries and forecast producer prices to rise 2.28% overall and 3.46% in the manufacturing sector alone. Given the changes in the producer price index (PPI) pre-pandemic, a 2.28% rise in PPI is significant. Businesses are expected to pass on increases in commodity prices to consumers. Less competitive companies, however, could fail to do so and end up undergoing restructuring due to margin erosion or weak price competitiveness. In addition, higher commodity prices are likely to cause inflationary pressure that affects all economic players over the long term.