South Korea’s faltering economy, hit hard by Typhoon Maemi early this month, will face further uncertainty as international oil prices are forecast to fluctuate wildly in the coming months, said the Bank of Korea (BOK).
In its latest assessment of the economy, the bank said international oil prices, which rose by around $5 a barrel after the termination of the war in Iraq, will be unstable and remain at current levels for the near term.
The average price of West Texas Intermediate (WTI) and oils from Dubai stood at $28.17 and $23.41 per barrel in August, up $3.4 and $4.4 from April when the Iraqi war broke out. In September, WTI dropped to US$28 on expectations that the US had would build up inventories.
But prices could rise again as the Organisation of Petroleum Exporting Countries (OPEC) is likely to discuss a reduction of production at a meeting slated for next Wednesday.
“Demand for oil is expected to go up in the coming months due to the economic recovery and seasonal factors, while oil supply is not likely to increase on the back of a fall in oil output in Iraq,” a central bank official said, according to a Korea Times report.
The central bank expressed concerns that inflationary pressure will build if the oil prices increase in line with hikes in prices of agricultural products fueled by Typhoon Maemi.
Consumer prices have already shown signs of increasing. In August, the prices of imported goods increased 0.6 percent, the largest gain since March, despite falls in prices of capital and consumer goods. The central bank attributed the rise to a 3% increase in oil prices.
According to the Korea Times report, the central bank estimates a $5 rise in international oil prices per annum will raise consumer prices by around 0.5 percentage point.