Seoul: Higher oil prices and a weaker won are already pushing up import costs, stirring inflationary pressure across the economy.
According to Yonhap News Agency, figures released by the Bank of Korea on Wednesday indicate that import prices in February rose 1.1 percent from the previous month and 1.2 percent from a year earlier. Crude oil prices jumped 9.8 percent, with the ongoing war involving Iran further escalating international oil prices in March. This trend suggests that import prices are likely to continue rising this month. The impact of rising import costs extends beyond the border, gradually affecting corporate production expenses and eventually consumer prices.
Inflation has a direct effect on daily life, prompting the government to respond firmly to any attempts to exploit market anxiety. Hoarding scarce goods or imposing excessive price hikes will not be tolerated. Last week, the government announced the implementation of special management for 23 items closely tied to people's livelihoods. These include petroleum products, which are currently subject to a maximum price system, alongside staple foods such as rice and basic necessities like school uniforms and sanitary products. President Lee Jae Myung has publicly identified these items as priorities. The government aims to root out price increases driven by collusion, unfair trade practices, or outdated distribution structures.
While a price cap on petroleum products is considered a short-term emergency measure, it is not seen as a long-term solution. Such a policy can distort resource allocation and, if prolonged, may lead to unintended side effects. Encouragingly, the government has started to emphasize demand management for energy. At a Cabinet meeting on Wednesday, President Lee directed officials to prepare measures in anticipation of a prolonged Middle East crisis and even to plan for worst-case scenarios. Proposed steps to reduce energy demand include potential driving restrictions based on vehicle plate numbers, highlighting the necessity to address consumption and not merely suppress prices.
President Lee also suggested that direct fiscal support for vulnerable groups would be more effective than cutting fuel taxes. While a fuel tax cut might offer immediate relief, it could encourage greater oil consumption when conservation is vital, making it a blunt and inefficient tool. The NH Financial Research Institute has also warned that extended conflict may necessitate government control of oil demand, recommending measures such as odd-even driving rules, promotion of remote work, and limits on late-night business operations. For serious preparation for potential crises, the government should develop a wide range of energy-saving policies now. Though demand management may be inconvenient, it is likely to prove more sustainable and effective than relying solely on price controls.