In July of 2012, DailyNK sources in the DPRK reported a sudden surge in rice prices. Compared to the per kilogram (kg) price of rice in June 2012, Pyongyang faced a 65.63% increase while Sinuiju recorded a 26.47% increase and Hyesan reported 28.21%. This dramatic inflation continued until September of 2012 and although prices fluctuated thereafter, by March of 2013, the price of rice had risen to an all time high of KPW 6950 in Pyongyang (26.42% increase compared to prices in July of 2012), KPW 7000 in Sinuiju (62.79%), and KPW 6850 in Hyesan (37%).
The nominal cost of this most basic grain underwent a steady decline starting in April of this year, falling to a low of KPW 5000 per kg in Pyongyang, KPW 5400 per kg in Sinuiju, and KPW 5500 per kg in Hyesan by June 2013.
By July of 2013, which remains the most recent data available to us from DailyNK, rice prices in these three cities showed less volatility than during the previous four months and stood at KPW 5400 in Pyongyang, KPW 5550 in Sinuiju, and KPW 5600 in Hyesan. Compared to prices a year ago in July 2012, a kg of rice had nominally increased 1.89% value in Pyongyang, 29.07% in Sinuiju, and 12% in Hyesan.
These observations on the changes in the nominal price of rice may lead some to believe that the food situation in North Korea has become more stable; after all, the fluctuations from July 2012 to July 2013 were much lower than the price increases from July 2011 to July 2012 (178.95% in Pyongyang, 126.32% in Sinuiju, and 150% in Hyesan).
However, stabilizing nominal price of rice in North Korean Wons (KPW), while not inherently a bad development and far preferable to hyperinflation and volatility, does not necessarily reflect the general state of the economy and real market conditions that facilitate the physical transaction of food for money.
Most importantly, we do not have information on wages or other relevant data in the economy to assess where the real value of KPW stands domestically. We can attempt to piece together an impression of the market conditions, however, by looking at the black market exchange rate of US dollars to KPW.
In July 2012, $1 was exchanged at the black market for KPW 5400 in Pyongyang, KPW 5190 in Sinuiju, and KPW 5280 in Hyesan. This meant that in July 2012, $1 could purchase 1.018868 kg of rice in Pyongyang, 1.20698 kg in Sinuiju, and 1.056 kg in Hyesan.
In July 2013, a US dollar bill could be converted for KPW 8190 in Pyongyang, KPW 8180 in Sinuiju, and KPW 8119 in Hyesan. This meant that a $1 could purchase 1.51667 kg of rice in Pyongyang (a 48.86% increase in purchase by weight compared to the year before), 1.47387 kg in Sinuiju (22.11%), and 1.44821 kg in Hyesan (37.14%).
We had discussed before on how foreign currency plays a dominant role in private market transactions and indeed, retaining dollars or yuans has proven to be a far better hedge in food security for the average North Korean than the North Korean Won itself. At the same time, acquiring these foreign currencies have become more difficult due to high-demand, undoubtedly driven up by their reassuringly ever-increasing purchasing value in North Korea.
What is clear is that the relative purchasing value of KPW is continuing to fall – people, given the option, would probably opt to hold US dollars over North Korean wons. The key question is how, under this adverse condition, a relatively stable price of rice is being maintained and for how long it can be retained. Decreasing the volatility of prices is a requisite task in restoring a currency’s credibility, which would then facilitate the state’s ability to initiate reforms in the economy, but at what cost is this being accomplished?
While more analysis on this issue is necessary – there is reason to believe that the state of the currency will play a key role in the country’s food security.
One can reasonably expect the next DailyNK update on prices in late September.