Rise in oil prices likely to affect consumers directly

A pedestrian passes by a gas station in downtown Seoul, April 5. Yonhap

By Lee Yeon-woo

As domestic oil prices are pushing upward following global trends, concerns are rising over its possible impact on consumer prices, which have been barely contained for the past few months. The government's possible scrapping of the fuel tax cut is also adding to concerns.

According to the Korea National Oil Corp., the gasoline price on Saturday stood at around 1,650 won ($1.26), which is an increase of 32.75 won compared to the previous week. This marks the second consecutive weekly rise in gasoline prices, with the price of diesel also seeing an increase after 21 weeks of relative stability.

The corporation cited several factors for the international oil price hike, including a decrease in Russia's crude oil production in March. It forecast the price to rise further in the coming week as well.

The upward trend in fuel prices is concerning due to its potential impact on consumer prices, which have only recently stabilized after several months of volatility. In March, consumer prices grew at their slowest pace in a year, increasing by only 4.2 percent year-on-year.

“From the latter half of the year, there is a great deal of uncertainty regarding the trend of international oil prices, domestic and international economic conditions, the magnitude and timing of public utility rate increases, and other related factors,” said Choi Chang-ho, the chief of the research department of the Bank of Korea.

The possibility of the government abolishing the fuel tax cut is adding to concerns while the government is reportedly burdened with a growing fiscal deficit due to the record decline in tax revenue. Finance Minister Choo Kyung-ho said that a decision on the fuel tax cut will come within the week.

“The public's burden should be considered seriously because uncertainties in international oil prices grew after OPEC+ decided to reduce oil production,” Choo said at a press meeting held in Washington D.C., Thursday.

The main opposition Democratic Party of Korea put the blame squarely on the government's recent efforts to reduce taxes on real estate and businesses. The Ministry of Economy and Finance estimates that the revision of these taxes will lead to a decline of approximately 20 trillion won in tax revenue over the next five years.

“It appears that the government is attempting to abolish the fuel tax reduction, but such a decision could be misguided as it would primarily benefit a small group of wealthy individuals while causing harm to the majority of the public,” the party's Chairman, Lee Jae-myung said at a forum held in the National Assembly, Thursday.

The government also plans to make changes to regulations on inheritance tax and income tax on stocks later this year.