Korea Development Institute (KDI) said on the 11th that prolonged war in the Middle East could push this year's consumer price inflation 1.6 percentage points higher than its previous forecast. Earlier, in Feb., KDI projected this year's consumer price inflation at 2.1%.
On the 11th, KDI said in its report "The impact of the recent rise in international oil prices on consumer prices" that if international oil prices exceed $100 in the fourth quarter, this year's consumer price inflation would be 1.6 percentage points higher than KDI's forecast for this year.
According to the Bank of Korea, based on Dubai crude, the average international oil price was $68.40 in Feb., $128.52 in Mar., and $105.7 in Apr. KDI said, "When international oil prices rise by 10 percentage points, domestic petroleum product prices increase by 2.69 percentage points."
However, KDI judged that a scenario in which international oil prices exceed $100 even in the fourth quarter is the worst case. A more realistic scenario, it said, is that prices reach $100 in the second quarter and then fall to $90 and $87 in the third and fourth quarters, respectively. In this case, KDI expected this year's consumer price inflation to be 1.2 percentage points higher than the forecast.
Still, KDI saw the government's high oil price measures, such as the petroleum price cap system and fuel tax cuts, as factors that would curb the pass-through of higher international oil prices to consumer prices. Ma Chang-seok, a research fellow at KDI's Economic Outlook Office, said, "Government policy has a price-suppressing effect, so we do not expect this year's consumer price inflation to exceed 3%."