March Consumer Sentiment Recovers to Pre-COVID Levels... Will 'Revenge Spending' Explode?

Bank of Korea March Consumer Sentiment Survey Results
Inflation Expectations Also Rise... Expected Inflation Up to 2.1%

On the 1st, a large department store in Yeouido was bustling with citizens out shopping. [Image source=Yonhap News]

[Asia Economy Reporter Kim Eunbyeol] As expectations for economic recovery grow due to COVID-19 vaccinations, consumer sentiment has improved for three consecutive months, reaching its highest level since January last year, before the pandemic. The expected inflation rate, which reflects the anticipated inflation rate one year from now, also jumped to 2.1%.

According to the Bank of Korea's Consumer Sentiment Survey released on the 26th, the Consumer Confidence Index (CCSI) for March was 100.5, up 3.1 points from the previous month. This marks the third consecutive month of increase since January. The CCSI uses the long-term average from 2003 to 2020 as a baseline of 100; a value above 100 indicates optimism compared to the long-term average, while below 100 indicates pessimism. Surpassing 100 means that more consumers expect improvements in their living conditions, the economy, and income. This is the first time since January last year (104.8) that the CCSI has exceeded 100, surpassing the long-term average.

Among the six sub-indices that make up the CCSI, all except the household income outlook (which remained flat) rose simultaneously. The Current Living Conditions CSI and Living Conditions Outlook CSI increased by 2 points and 1 point to 89 and 95, respectively, while the Consumption Expenditure Outlook CSI rose 3 points to 107. The Current Economic Conditions CSI jumped 9 points to 72, and the Future Economic Outlook CSI increased 3 points to 93.

Hwang Heejin, head of the Statistical Survey Team at the Bank of Korea’s Economic Statistics Bureau, explained, "Looking at consumer sentiment alone, it seems to have nearly reached pre-COVID-19 levels and can be considered to have recovered to a somewhat normal level. Five of the six CSIs that make up the CCSI, excluding household income, are also close to the long-term average."

The CCSI fell to 73.3 in April last year during the first wave of COVID-19. It gradually recovered to 99.0 in November during the second wave but dropped again to 91.2 in December due to the third wave. Since the beginning of this year, it has been on the rise again.

Along with expectations for economic recovery, inflation expectations are also rising. The expected inflation rate for the next year rose by 0.1 percentage points from the previous month to 2.1%, the highest since July 2019 (2.1%). The response rates for major items expected to influence consumer prices over the next year were 55.6% for agricultural, livestock, and fishery products; 39.8% for petroleum products; and 33.9% for rent. Compared to the previous month, the response rates increased for petroleum products (+9.3 percentage points) and agricultural, livestock, and fishery products (+3.2 percentage points). The inflation perception index, which reflects the perceived inflation rate over the past year, also rose by 0.1 percentage points to 2.1%.

It is analyzed that consumers feel prices are rising due to recent sharp increases in agricultural product prices, as well as steady rises in oil prices and rent. Team leader Hwang said, "It is true that the expected inflation rate is on an upward trend again," but added, "It will be necessary to monitor whether market liquidity continues to increase and how long agricultural product prices will remain high as seasonal factors ease." Inflation concerns originating from the U.S., rising market interest rates, and increased volatility in international financial markets were also cited as reasons why people perceive prices to be rising.

Meanwhile, according to the survey, the Interest Rate Outlook CSI rose sharply by 10 points to 114 compared to the previous month. This increase is the largest monthly jump since December 2016, when it rose by 12 points. The Housing Price Outlook CSI recorded 124, down 5 points from the previous month. This is interpreted as a slight weakening of housing price expectations, as the rate of increase in apartment prices in Seoul has plateaued.

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