Mon, Feb 27, 2012 - Page 10 News List

Oil could lift South Korea inflation

POTENTIAL THREAT:Instability in the oil market and high oil prices could put pressure on the South Korean government’s inflation target of only 3.2 percent this year

Bloomberg and Reuters, MEXICO CITY

South Korean inflation might accelerate above the government’s target on higher oil prices, just as the nation’s economic growth is about to start improving, South Korean Minister of Finance Bahk Jae-wan said.

While inflation is “likely” to dip this month below the 3.4 percent rate last month and be “even lower” next month, instability in the oil market threatens to push overall consumer prices above the government’s 3.2 percent target for the year, Bahk said in an interview in Mexico City on Saturday.

He said that a 10 percent increase in the cost of crude pushes inflation up by 0.12 percentage point.

Oil capped its longest rally since January 2010 last week as escalating tension with Iran threatens supplies, with a barrel for April delivery reaching US$109.77 on the New York Mercantile Exchange.

Brent crude rose to a nearly 10-month high of US$125 a barrel on Friday, while Brent in euros this week hit a record high above 93 euros a barrel.

“Oil prices are likely to have a far-reaching impact on the overall economy,” said Bahk, who was attending meetings of G20 finance ministers.

“We are hopeful that the 3.2 percent will be reached, or even lower. It is a priority for the government to control inflation as much as possible,” he said.

The slower inflation rate last month was largely because of a high year-earlier level, the South Korean central bank said in a report to the National Assembly last week. Price pressures will persist because of higher inflation expectations and unstable oil costs, it said.

The expected inflation rate over the next year was 4.1 percent last month, according to a Bank of Korea survey last month.

Separately, oil-producing members of the G20 said on Saturday they would take measures to avoid a rise in petroleum prices from hurting the world economy, an Italian government official said.

“Oil prices developments are one of the potential risks to the global economy, but there is awareness among G20 about this problem,” Italian Deputy Minister of the Economy Vittorio Grilli said on the sidelines of a meeting of the G20 leading economies.

“Oil-producing countries are aware of this potential risk and they have said they will act in a way to prevent the risk to materialize,” he said.

The world’s top oil producer, Saudi Arabia, is a member of the G20.

Other petroleum exporters in the group include Russia, Canada and Mexico.

Saudi Arabia increased exports sharply in the past week and is offering extra supplies to its biggest customers worldwide, in what industry sources said appeared to be a bid to tame runaway crude prices.

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