Inflation fears grow over impact of Israel-Hamas conflict

Global oil prices edged down slightly on Tuesday after gaining more than four percent in the previous session over fears of the impact of the weekend attack on Israel by Hamas, with some concern it could drive up inflation.

Prices for petrol and diesel are on display at a gas station located in Seocho District in southern Seoul on Tueday. Oil prices gained more than four percent over fears of the impact of the weekend attack on Israel by Hamas. [NEWS1]

Global oil prices edged down slightly on Tuesday after gaining more than four percent in the previous session over fears of the impact of the weekend attack on Israel by Hamas, with some concern it could drive up inflation.

West Texas Intermediate crude, the U.S. benchmark, traded below $86 a barrel on Tuesday after trading roughly $86 on Monday on concerns that the situation in Israel and Gaza could disrupt oil output from the Middle East.

Financial authorities said on Tuesday the impacts of the Middle East conflict on global oil prices and the financial market are currently limited but inflation concerns are rising.

“If global oil prices continue to rise, concerns on inflation may be reignited in both advanced and emerging nations,” said Jeon Byung-ha, an analyst at NH Investment & Securities in a report on Tuesday. “If the issue persists amid a U.S. budget deficit and inflation, the rate increase in advanced nations may result in a rate increase in emerging nations.”

The Consumer Price Index in Korea grew 3.7 percent in September from a year earlier, up from 3.4 percent growth in the previous month.

Movements across global financial markets are limited so far as the situation is at its initial stage, but uncertainties are very high considering how the situation may develop, according to the Ministry of Economy and Finance in a statement, citing Finance Minister Choo Kyung-ho.

The ministry pledged to thoroughly monitor the domestic and global financial markets, and foreign exchange markets, and ordered financial authorities to review the contingency plans that had been set up for an emergency.

The ministry also vowed to strengthen efforts in stabilizing the price for energy and agricultural, livestock and fisheries products.

Financial Services Commission chief Kim Joo-hyun agreed the impacts of the latest Middle East conflict to be limited on global financial markets, though the chance of a spread in military collision to surrounding nations cannot be excluded.

Kim noted that past regional conflicts in the Middle East had limited impacts on global oil prices and the financial markets unless they turned out to be much greater than a short-term flare-up.

The S&P 500 and Nasdaq rose 0.63 percent and 0.39 percent, respectively, on Monday. Kospi closed down 0.26 percent on Tuesday.

The alleged report that “Iran helped plot the attack on Israel is something that needs to be noted, but Iran at least officially said it is not involved in the latest conflict,” said Kwon Ki-joong, a fixed income analyst at IBK Securities in a report on Tuesday.

“Even if the conflict spreads and Iran restricts crude oil exports, its impacts on import and consumer prices will spread with a time difference, and therefore, the Bank of Korea’s pressure to take restrictive measures will not stand out immediately.”

The Bank of Korea has kept the policy rate steady at 3.50 percent since January.

The next Monetary Policy Board meeting is scheduled to take place on Oct. 19.

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