Inflation Risks Rising Amid Recovery
By Kim Jae-won
Staff Reporter
A fast run-up in prices of oil and raw materials is escalating inflation risks here amid economic recovery.
Although consumer inflation has been kept in check so far, concerns are growing that inflationary pressure will pick up next year in line with an economic rebound, which many believe will burden Asia’s fourth largest economy.
According to Statistics Korea, Tuesday, gasoline prices rose 9.7 percent in November compared to the same period last year on the back of a hike in international oil prices.
Dubai crude oil price fell to $45 in January, but spiked to $75-$80, the highest price in the year in November. It’s currently selling just below $80, and is pressuring consumer prices.
Analysts say this trend may persist next year.
``The average price of Dubai oil in 2010 will be $74.37, a 21 percent rise from this year. It could even rise to $100 if demand rises with a fast global economic recovery,’’ said Lee Chul-yong, a research fellow at the Korea Energy Economics Institute, told The Korea Times.
Lee pointed out that the weakened dollar value is increasing upward pressure on oil prices.
``Investors buy oil as the dollar weakens. The coupling of the dollar with oil is deepening,’’ Lee said in a report.
``Oil prices have a direct connection with consumer prices. A 15 percent rise in oil prices increases consumer prices by 0.14 percent. It also badly affects trade and investment also slows,’’ Lee added.
Rising oil prices are translating to consumer prices. For example, airline companies plan to increase air fares.
``We have to raise the fares due to high oil prices,’’ Lim Jae-won, an official at Korean Air said.
The retail price of gasoline also rose. The average gasoline price was 1,653.27 won per liter in the first week of December, a 19 percent rise from the same period last year.
However, the Bank of Korea is not overly worried about inflation.
``There are many elements that decide consumer prices. It is true that oil price affects them, but other factors, such as currency stability and demand should also be looked at,’’ Shin Woon, team head of the inflation research division at BOK, said.
``I do not think there is a great danger for inflation next year. I expect consumer prices to be within our inflation target range of 2 to 4 percent next year.’’ The central bank recently widened its 2010-to-2012 figure from the existing 2.5 to 3.5 percent in order to manage monetary policy in a more flexible manner.