[THE INVESTOR] Low global oil prices were responsible for the weak consumer inflation rate in the first half, falling far short of its target, Korea’s central bank said on July 14

The Bank of Korea noted that in the January-June period, consumer prices increased by only 0.9 percent from the same period last year, below its 2-percent target for the 2016-2018 period.

“This was partly because an upward pressure from the demand side remained weak due to a delay in economic recovery, but the main cause rather came from a large drop in global prices of raw materials, such as global oil prices,” the BOK said in a press release.

 

“However, when considering that the core inflation, which excludes volatile oil and food prices, grew 1.7 percent in the six-month period, the downward burden on consumer prices from the demand side does not seem to have been too favorable,” it added.

The BOK said the average price of Dubai crude, South Korea‘s benchmark, was about 35 percent lower than average from the first half of 2015, claiming the country’s consumer prices may have gained an additional 0.8 percentage point without such a fall in oil prices.

“A drop in import prices in addition to a cut in global oil prices was also a factor limiting the rise in consumer prices. Due to a dip in global prices of raw materials and weak global demands, the country’s import prices decreased about 7 percent from a year earlier,” it said.

Speaking at a press conference, BOK Gov. Lee Ju-yeol offered no immediate remedies, insisting such steps were neither necessary nor desirable.

“The weak price increase is a main consequence of external factors, such as low oil prices, which means there is very little a monetary policy can do to change,” Lee said.

“Operating monetary policies solely to meet the inflation target could lead to negative outcomes, such as sudden changes in the economy,” he added.

The press conference came as the top central banker is required to explain reasons for the bank’s failure to meet the target when actual inflation strays from its target by more than 0.5 percentage point in either direction for more than six months.

The BOK forecast consumer prices will rise 1.3 percent in the second half. For the entire year, the central bank revised down its outlook for consumer price inflation to 1.1 percent from 1.2 percent forecast three months earlier.

(theinvestor@heraldcorp.com)