Korea’s rising commodity prices fuel inflation.

Governor Lee Seong Tae from the Bank of Korea core commodities such as oil and grains are “leading directly to above-target inflation”.

Consumer prices are up 3.6 percent in February from a year earlier, above the banks target range that is between 2.5 percent and 3.5 percent.

The world’s fourth largest economy relies heavily on the imports of raw materials and the effect on crude oil, and grain process directly affects domestic consumer prices that in turn have a knock on affect on the global economic situation.

The Koreaan President Lee Myung Bak had previously indicated that government policy would be switching to primarily an economic focus in order to fight inflation instead of spurring growth due to instability of the financial-markets.

The governor said that the international financial-market crisis and overriding threat of inflationary pressures is likely to continue although it is ‘unlikely’ to threaten global financial systems as “sustained growth in China and other emerging-market economies could increase demand for oil and grains and result in a higher level of prices in raw materials.”

With the dollar likely to remain weak in the long term the US economy according to Lee will see a slow growth despite the worst of the aftershocks of the US subprime crisis over South Korea’s economy likely to have many obstacles over the next two years before improvement is seen although on a positive note he conceded that Asia’s emerging economies “have strengthened financial systems since the currency crisis and can absorb external shocks on the back of large-scale accumulation of foreign currency reserves.”

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