Gloom over black stuff

Fears rise over petrol-fed inflation

By Kim Tong-hyung

In an odd mixture of desperation and heroism, government officials have allowed the fight against inflation to depend entirely on their ability to bully companies into lowering prices.

They now find themselves dreading the question ``what’s next?’’ having nothing to show for their assertiveness in past months and the corporate sector unwilling to play along any longer.

July could prove to be the month of truth for the Lee Myung-bak administration, which has been losing on all fronts since boldly declaring an ``all-out war’’ against inflation.

Consumer prices have been growing by at least a point above the government’s 3 percent target for every month this year through May. But despite expressing alarm over the bad data, policymakers continue to put growth before price stability, avoiding a clampdown on money supply and resorting to price controls instead.

At the receiving end of pressure were firms in heavily-regulated industries like energy and telecommunications. Eventually, the country’s four refiners, SK Energy, GS Caltex, Hyundai Oilbank and S-Oil, were forced into cutting gasoline and diesel prices by 100 won per liter for three months ending on July 6.

With July 7 now just around the corner, policymakers are petrified over the effect future fuel cost rises could have on inflation and the temper of motorists.

Should fuel prices climb 100 won a liter, this would add an extra 0.2 point to 0.3 points to the consumer price index (CPI), the country’s key measure of inflation, making it a bigger factor than just about any other variable, including international oil prices.

Government officials hope refiners will extend the discounts beyond July or at least resist raising prices immediately by the 100 won a liter margin. After months of taking flak over its ``arm-twisting’’ of the private sector, authorities at the Knowledge Economy are going out of their way to insist that no pressure has been put on the companies.

Do Kyung-hwan, the head of the ministry’s energy policy division, said it would be ``unthinkable’’ for the government to drag refiners into bailing it out again. This was after Huh Chang-soo, GS Group Chairman and head of the Federation of Korean Industries (FKI), an influential business lobby, denounced the calls for extended price cuts by claiming that refiners have already done their part in ``sharing the pain’’ of inflation.

``There’s no question that we need to put prices back where they were. But an immediate rise of 100 won per liter will trigger fierce resistance from consumers, so we are discussing the right way and pace in normalizing the prices,’’ said a spokesman from one of the refiners.

Critics say that government officials have shot themselves in the foot with their obsession with price control. Since President Lee declared there was something ``strange’’ about fuel prices in January, policymakers had justified their heavy-handed approach by claiming that refiners had been ripping off customers by raising fuel prices faster than the increase in crude costs and acting coy when international prices came down.

If the debate was ever about finding an appropriate level in fuel prices, government officials have long lost the plot. The cost of crude was moving around the $105-110 per barrel range three months ago, but now appears settled in the low 90s.

So it could be argued that, even with the 100 won per liter discounts and all, refiners are already charging motorists more than they justifiably should. Now as they are looking to raise prices even more, there isn’t much tongue-tied government officials can do about it.