South Korea's central bank on Thursday named low global oil prices as a main cause of the country's slow consumer price increase in the first half, insisting its local demands have remained strong and will continue to expand.

In the first six months of the year, the country's consumer prices have gained only 0.9 percent from the same period last year, falling far short of the central bank's 2 percent target for the 2016-2018 period, the Bank of Korea noted.


"This was partly because an upward pressure from the demand side remained weak due to a delay in economic recovery, but the main cause rather came from a large drop in global prices of raw materials, such as global oil prices," the BOK said in a press release.

"However, when considering that the core inflation, which excludes volatile oil and food prices, grew 1.7 percent in the January-June period, the downward pressure on consumer prices from the demand side does not appear to have been too great," it added.

The BOK said the average price of Dubai crude, South Korea's benchmark, was about 35 percent lower than average from the first half of 2015, claiming the country's consumer prices may have gained an additional 0.8 percentage point without such a reduction in oil prices.

"A drop in import prices in addition to a cut in global oil prices was also a factor limiting the rise in consumer prices. Due to a dip in global prices of raw materials and weak global demands, the country's import prices dwindled about 7 percent from a year earlier," it said.

While speaking at a press conference, BOK Gov. Lee Ju-yeol offered no immediate remedies, insisting such steps were neither necessary nor desirable.

"As I have said the weak price increase is largely due to external factors, such as low oil prices, which means there is very little a monetary policy can do to change," Lee said.

Also, "Operating monetary policies solely to meet the inflation target could lead to negative outcomes, such as sudden changes in the economy," he added.

Thursday's press conference came as the top central banker is required to explain reasons for the bank's failure to meet the target when actual inflation strays from its target by more than 0.5 percentage point in either direction for more than six months.

The BOK forecast consumer prices will rise 1.3 percent in the second half.

For the entire year, the central bank revised down its outlook for consumer price inflation to 1.1 percent from 1.2 percent forecast three months earlier. (Yonhap)