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(EDITORIAL from Korea Times on Sept. 12)

Editorials from Korean dailies 06:52 September 12, 2023

Soaring oil prices
Concerns grow over resurgence of inflationary pressure

Oil prices are picking up steam, stoking fears of plunging global economies into a whirlpool again. The recent spike in crude prices has mainly been initiated by Saudi Arabia and Russia, the second and third largest oil producers, respectively. They have decided to prolong their previous plans to curtail oil production until the end of this year. Alarmed by the unexpected announcement, international oil prices, including Brent crude oil, broke $90 a barrel, Friday. Some experts forecast global oil prices will reach $100 by the year-end should the current trend continue.

The two nations have sought to extend the output cut as part of efforts to stave off a possible price decline amid prospects of sluggish oil consumption exacerbated by a protracted economic slowdown in China. Russia is now eager to secure enough money to finance its war against Ukraine, desperate to prevent crude prices from dropping. Saudi Arabia has been reluctant to increase oil output despite being touted by the United States, with whom it is at odds.

Oil prices have been increasingly vulnerable to diverse factors, such as diplomacy and security, as well as supply and demand. It is worrying that the recent decision will fan global inflationary pressure.

Many Wall Street analysts forecast the U.S. will attempt to raise the benchmark rate again in November as a preemptive step ahead of the presidential election next year.

A continued surge in oil prices will have a far-reaching impact on the national economy, including commodity prices. And it will negatively affect the foreign exchange and securities markets, heralding a possible depletion of foreign currency reserves. Such ominous consequences will deal a significant blow to Korea, with its relatively heightened dependence on trading. Businesses will likely struggle with rising manufacturing expenses paired with falling profits. This will inevitably lead to dwindling investments.

Korea's economy will likely face fresh setbacks. For starters, exports contracted in July, continuing to shrink for 11 straight months. In contrast, consumer price growth, which stalled at the 2 percent level in June and July, again jumped 3.4 percent in August.

Korea has been posting trade deficits since March of last year. It turned to register a trade surplus for three months straight since June. Yet the surplus was due chiefly to a sharp drop in imports rather than being backed by growth in overseas shipments amid lowered oil prices.

Korea has yet to recover its export growth trend. Any possible rise in imports following the surge in oil prices will lead to a widening trade deficit, threatening the fiscal soundness of the state coffer. Consumer prices have already shown signs of soaring, with the prices of gasoline, for instance, surpassing 2,000 won ($1.50) per barrel at some gas stations across the country. Seoul citizens have been suffering from a 12 percent hike in gasoline prices in only two months.

Anxiety is increasing over the potential advent of a second inflationary shock especially ahead of the traditional Chuseok holiday later this month. It is high time for the government to take all possible measures to cope with the imminent inflationary pressures. And such steps should focus on properly managing the supply and prices of energy resources. It also needs to prevent any factor from triggering an increase in consumer prices.

The government earlier forecast oil prices to stand at $84 by the end of the year. Yet it should now revise its estimate. It should also correct the earlier forecast that commodity prices will be stabilized in October. Economic authorities should thoroughly review diverse policies by rectifying the previous "rosy" prospects of the national economy, taking the huge challenges into account.

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