Korea’s inflation woes are deepening as the worsening turmoil in Libya has sent oil prices on an upward spiral. The price of Dubai crude oil, South Korea’s benchmark, stayed above the $100 mark for the three consecutive days on Thursday. If the Dubai oil price remains above $100 for two more days, the government has to upgrade its energy alert level from the current “blue” to “yellow.”
The surge in oil prices is making it all the more difficult for Korea to tame inflationary pressures. The government has already been putting on a full-court press to cushion the impact from skyrocketing food and commodity prices. Global food prices reached an all time high in January, according to the U.N. Food and Agriculture Organization.
The combination of oil, food and commodities price hikes has led Finance Minister Yoon Jeung-hyun to bemoan the difficulty of attaining the government’s inflation target of 3 percent for this year. At a meeting with senior economic policymakers on Wednesday, Yoon said recent developments in North Africa were impeding the government’s efforts to control consumer prices.
But it is necessary for policymakers to make greater efforts to curb inflation. They need to make sure that corporations do not raise the prices of their products competitively following the hikes in global oil prices. At the same time they need to consider lowering import tariffs on oil and other commodities as a short-term measure. If oil prices continue their upward spiral, the government will have to cut the oil tax as it did in 2008.
Policymakers also need to take action to help exporters and construction companies that were hurt by the upheavals in the Middle East and North Africa. They are also required to prepare for the growing possibility of the Jasmine Revolution spreading to other major oil-producing countries in the Middle East. If uncertainties increase in the Arab world, the recovery of the global economy will slow.