South Korea’s inflation may not peak out from the 24-year high levels in October as hopped by authorities as the government inevitably may have to push utility fees higher due to unfazed strengthening in energy sourcing fuel imports and U.S. dollar.

The government and central bank hoped inflation would ease from October. The consumer price index grew 5.7 percent on year in August, off the gains of 6.0 percent in June and 6.3 percent in July.

“We carefully forecast consumer prices to stabilize slowly after peaking out in October at the latest,” Finance Minister Choo Kyung-ho said during a parliamentary session last week on signs of easing in fuel costs.

Oil prices have plunged to $90 per barrel range after hitting $130. Prices of agricultural, livestock, and fisheries products jumping 7.1 percent in July and 7.0 percent in August were expected to come down from October on increased output.

But strong inflation may protract due to gas crisis in Europe and unrelenting strength in the dollar rate against the Korean won and other currencies.

Higher rise in utility bills may be inevitable as the result.

The finance and trade, industry, and energy ministries are in discussion on raising electricity and city gas rates in October. The government has announced to raise basic fuel cost in electricity rates by 4.9 won ($0.004) per kilowatt hour in April and October and city gas fee to 2.3 won in October from 1.9 won.

An additional hike would be necessary to cover up for aggregating losses and rising raw materials costs at Korea Electric Power Corporation and Korea Gas Corporation. But the finance ministry worries the impact on inflation as electricity, gas, and water charges have already been upped 15.7 percent so far this year.

The industry ministry is proposing raising the unit fuel cost cap to beyond 5 won under revised system in the fourth quarter.

The system marginal price (SMP), which is the cost that KEPCO pays for electricity to public and private power generating companies, reached 225.24 won per kilowatt hour between Sept.1 and 18, already surpassing the highest monthly average of 201.58 won in April. The price hit a daily high of 255.47 won on Sept. 16.

Settlement unit price in gas price has increased to 1.23 won in May from zero won and 1.9 won in July and will go up to 2.3 won in October. KOGAS’s losses reached 5.1 trillion won as of end of June, more than tripling 1.8 trillion won at the end of last year. KEPCO estimates a loss of 27.2 trillion won this year after incurring operating loss of 14.3 trillion won in the first half.

By Pulse

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