The spot price of Dubai crude, the Middle Eastern oil that Korea mainly imports, recorded $105.39 per barrel on the 7th. It is the highest level in about three months since May 20 ($106.6). As a result, the average price in the second half rose to $84.
The government projected this year's consumer price inflation at 2.6%, on the condition that international oil prices stabilize downward from an average of $92 in the first half to an average of $78 in the second half. With the recent upward trend in global oil prices, analysts say a red flag has been raised for the government's inflation management.
◇ Since July, Dubai crude averages $84… above the government's forecast
According to the Korea National Oil Corporation (KNOC) on the 8th, the average price of Dubai crude from July 1 through the previous day is $84. It showed an upward trend, breaking above $90 in August and $100 in September after starting in the $60–$70 range in early July. The blockade of the Strait of Hormuz, a crude oil transport route, after the United States and Iran resumed attacking each other in August, had an impact.
For the second-half average price of Dubai crude to reach the government's expected $78, it would have to fall to $74—about 30% lower than now—during September to December. Observers say that will be difficult unless the United States and Iran dramatically agree to a cease-fire or Middle East tensions ease quickly. Goldman Sachs on the 7th (local time) projected that international oil prices could rise to as high as $120 this year.
◇ As prices rise, the possibility of a base rate hike also grows
If Dubai crude prices stay at current levels, consumer price inflation could surpass 2.6%. According to analysis by the Bank of Korea, if the "pessimistic scenario" of prolonged Middle East conflict materializes, consumer price inflation could reach 2.8%. If so, consumer price inflation would be at its highest level in three years since 2023 (3.6%).
This year's consumer price inflation exceeded 3% in May–June, slowed to 2.8% in July, and rose above 3% again in August. Heightened tensions in the Middle East pushed Dubai crude prices back up. Industrial products, which are influenced by oil prices, rose 3.7% from a year earlier, lifting consumer prices by 1.24 percentage points. Of that, petroleum products added 0.54 percentage point to consumer prices.
If prices rise, the Bank of Korea could move to raise the base rate further. Kim Myeong-sil, a researcher at iM Securities, said, "If inflation in the fourth quarter stays in the high 2% range and core inflation hovers around 2.5%, it could provide grounds for the Bank of Korea to raise the base rate further to 3.25% (from the current 3% per year)."