Fuel tax cut extended to tackle inflation amidst Israel-Hamas conflict

Finance Minister Choo Kyung-ho at a ministerial meeting held at the government complex in central Seoul on Monday. [YONHAP]

Korea will extend the tax cut on fuel consumption throughout the end of the year amid concerns about inflationary pressure caused by the outbreak of the Israel-Hamas conflict in early October.

Finance Minister Choo Kyung-ho said in a ministerial meeting on Monday that the government will extend the tax cut from the end of October to stabilize oil prices that could escalate inflation, especially for energy and food.

The government has applied a 25 percent discount on the consumption of gasoline and a 37 percent discount on diesel consumption. The government initiated the discount on energy prices in Nov. 2021 to reduce the heightened oil price's impact on consumers following the Covid-19 pandemic.

Choo added the ministry will strengthen the on-site inspection of oil retailers to prevent them from riding on the rise in global oil prices. The government will inspect 6,000 gas stations through December.

U.S. West Texas Intermediate crude futures traded at around $87 on Monday compared to roughly $83 on Oct. 6, a day before the Palestinian militant group Hamas launched attacks against Israel.

“Armed conflict has intensified,” said Choo in a statement, noting the deteriorating regional conflict. “But Korean residents and corporations in the region have suffered no confirmed harm.”

He added, “Depending on how the situation unfolds, risks centered on energy and supply chains could spread again, resulting in the resurfacing of difficulties amid stabilizing global inflation.”

Korea’s consumer prices rose 3.7 percent on-year in September, down from 5.2 percent at the beginning of the year. Consumer prices in the United States rose 3.7 percent from 6.4 percent over the same period.

Korea’s market has struggled since the outbreak of the Israel-Hamas conflict.

Kospi fell to 2,436.24 on Monday, up 1.14 percent from Oct. 6.

The won also weakened against the dollar.

The won rose to 1,353.7 on Monday from 1,349.90 on Oct. 6.

“This week is expected to be the watershed that could determine the spread of the conflict in the Middle East as the Israeli military prepares to invade the Gaza Strip and Iran warns Israel against regional escalation,” economist Park Sang-hyun from Hi Investment & Securities said in a Monday report.

“That will raise volatility in oil prices. If it reaches or surpasses $90, U.S. Treasury yields will bounce back, strengthening the dollar.”

BY JIN MIN-JI [jin.minji@joongang.co.kr]