Oil Prices Soar to Record High, Put Pressure on Consumer Price

The consumer price index is showing troubling signs. Apparently hit by rising international oil prices, the prices of gasoline and other petrochemical products have soared to a record high.

Now that Moody`s, U.S. credit rating agency, downgraded the country`s rating from positive to negative, the value of Korean won is likely to go down, raising prices of exported products and putting pressure on commodity prices at home.

According to the Ministry of Commerce, Industry and Energy and the Korea National Oil Corporation on February 12, which jointly conducted a price survey among gas stations and liquid petroleum gas filling stations nationwide, the average retail price for smokeless gasoline was 1323.61 won per liter in the first week of February, up 21.11 won from a week earlier. The figure is a record high passing beyond the earlier record of 1306.92 won in September 2000.

Seoul was the most expensive city to use gasoline at 1373.47 won, followed by Incheon (1353.87 won), Gyeonggi (1343.82 won) and the metropolitan and Jeju (1371.12 won). The average price nationwide, except Chungbuk, Gyeongbuk, Daegu, Chollabuk and Chollanam areas, was above 1,300 won.

The price of vehicle gasoline also rose 12.13 won to 785.93 won per liter in February compared with a month earlier, continuing the uptrend since late last year. The price of kerosene for indoor use also rose 13.61 won to 652.91 won per liter, and kerosene used for boilers up 15.68 won to a record high of 656.25 won. LPG for vehicles also soared to the highest level at 561.75 won per kg.

To cope with rising oil prices, the government has unveiled a plan to stabilize prices of petrochemical products at home by lowering import taxes. With the ongoing price hike, however, manufacturing costs including delivery and logistics expenses will most likely rise, putting pressure on commodity prices.

The consumer price index for January already stood at 3.8% year-over-year, approaching the annual limit of 2 to 4% set by Bank of Korea.

Meanwhile, the price of Dubai oil was traded at $29.61 per barrel on the spot market on February 11, down $0.63 from a day earlier but still harboring at the $30 level. The transfer price of Dubai on February 10 was $29.37 getting closer to the $30 level. West Texas Intermediate (WTI) topped the $35 mark on the day, up $0.97 to $35.46, and North Sea Brent was up $.53 to $32.42.

Ja-Ryong Koo Kwan-Hee Hong bonhong@donga.com konihong@donga.com