January Consumer Sentiment Improves... Majority Expect Interest Rates to Rise in 6 Months

Bank of Korea 'January 2021 Consumer Sentiment Survey'

[Asia Economy Reporter Eunbyeol Kim] Consumer sentiment improved compared to the previous month as the third wave of the novel coronavirus infection (COVID-19) slowed down this month. With growing expectations for economic recovery, more people anticipated interest rates to rise in six months. The majority also expected housing prices to increase one year from now compared to the current level.

According to the 'January 2021 Consumer Sentiment Survey' released by the Bank of Korea on the 26th, the Consumer Confidence Index (CCSI) for January was 95.4, up 4.2 points from the previous month. The CCSI is a sentiment indicator calculated using six major indices from the Consumer Sentiment Index (CSI), with a long-term average (January 2003 to December 2020) set at 100. A value above 100 indicates optimism compared to the long-term average, while below 100 indicates pessimism.

Although consumer sentiment remains below 100 and thus pessimistic, it has improved compared to December last year when the third wave of COVID-19 was severe. The CCSI dropped 7.8 points to 91.2 in December but rebounded within a month.

Hwang Hee-jin, head of the Statistical Survey Team at the Bank of Korea’s Economic Statistics Bureau, explained, "The CCSI rose as the third wave of COVID-19 entered a stabilization phase and expectations for vaccine rollout improved outlooks on the economy and household finances." Among the six major indices comprising the CCSI, the Future Economic Outlook CSI (89) rose 8 points from the previous month, Household Income Outlook CSI (96) and Consumption Expenditure Outlook CSI (102) each increased by 3 points. The Current Living Conditions CSI (86) remained at the previous month’s level, while the Living Conditions Outlook CSI (93) rose 4 points.

Expectations for economic activity resuming led the Employment Opportunity Outlook CSI to increase by 6 points to 80. The Current Household Savings CSI (92) and Household Savings Outlook CSI (94) also rose by 3 points and 1 point, respectively.

Meanwhile, the Interest Rate Level Outlook CSI recorded 102, marking the highest level since May 2019 (109). With the current base interest rate lowered to 0.5% per annum, people felt there was little chance of rates falling further in the near term, causing the Interest Rate Level Outlook CSI to rise. A value above 100 indicates that more people expect interest rates to rise in six months. Since June 2019 (100), the Interest Rate Level Outlook CSI had consistently remained below 100 amid a prolonged low-interest-rate environment.

The Housing Price Outlook CSI, which surveys expectations for housing prices one year ahead, was 130, down 2 points from the previous month. Although the nationwide apartment sale prices continued to rise, some viewed the pace of increase as slowing due to the significant price surge last year. However, the index still remained well above 100, indicating that more people expected housing prices to rise in the future.

The perceived inflation rate over the past year was 1.8%, and the expected inflation rate for the coming year also remained at 1.8%, maintaining the previous month’s level. Among major items expected to influence consumer prices over the next year, rent accounted for the largest share at 48.0%, followed by agricultural, livestock, and fishery products (39.6%), and public utility charges (34.0%).

This content was produced with the assistance of AI translation services.