Worries over oil price hikes

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Worries over oil price hikes

The price of West Texas Intermediate surged a whopping 30 percent in May, reaching $66.31 over the weekend.

In addition, gold prices are again on the verge of surpassing $1,000 per ounce and the price of copper has soared 57 percent this year.

Of course, prices are still much lower than the record-high figures in the first half last year but we shouldn’t be complacent.

It is widely predicted that the prices of raw materials will continue their rising momentum. The U.S. dollar is weakening and there are few solid signs of economic recovery.

It’s true that, according to the National Statistical Office, consumer prices in May advanced 2.7 percent compared with the same period a year ago - the first reading in the 2 percent range spotted in 20 months. And the trade surplus in May registered $5.15 billion.

These results are better than anticipated. What really matters now is the rising cost of raw materials. The most important issue is that this country adopts a more realistic view of the state of the economy.

The rising cost of oil had a negative impact on the economy around one to two months ago

This means Korea can no longer expect the current account surplus, created by imports decreasing faster than exports, to remain as it is.

Unless the Korean won strengthens, it’s likely that we will see an annual inflation rate of 4 to 5 percent.

The raw material shock, along with the global economic slowdown, is one of the biggest variables that threatens the Korean economy.

It is true that Korea has enjoyed profits from the oil price slump and weaker won over the past 10 months.

The trade account deficit turned around automatically and Korean businesses showed relatively better earnings compared with their global competitors.

However, accidental profits are about to disappear and the trade account surplus has peaked.

The surge in international oil prices and raw material prices is possibly the biggest problem the economy will have to deal with.

If the government intends to manipulate its currency or interest rates to cope with the external shock, it should be prepared to see side effects such as a further slowdown in its economy, inflation and an aggravated current account.

Last year Korea experienced a serious oil price spike. To prevent a nightmare from reoccurring, we should start preparing from today.

One way to look forward is to develop alternative energies. Solar, wind, bio and ethanol power sources are not pricey extravagances. They are a potential means of survival.

It is high time Korea spurred on eco-friendly economic growth projects, which stalled after oil prices began to fall after their peak last year.
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