[Weekly Review] Households Still Under the Shadow of COVID-19, Inflation Pressure Increasing

Q1 External Debt Hits Record High...Short-term External Debt Ratio Rises 1.2%p in 3 Months

[Asia Economy Reporter Kim Eunbyeol] As the shock of COVID-19 gradually subsides, macroeconomic indicators such as Gross Domestic Product (GDP) and exports are showing rapid improvement, but households still appear unable to escape the shadow of COVID-19. Meanwhile, foreign investors have been buying a large amount of Korean bonds, including government bonds, causing external debt to reach an all-time high. The combination of money supply due to COVID-19 and raw material supply shortages has continuously driven price indices upward. Producer prices have been rising for six consecutive months.

Jeong Dong-myeong, Director of the Social Statistics Bureau at Statistics Korea, is announcing the results of the 1st quarter 2021 Household Trends Survey on the morning of the 20th at the Government Sejong Complex in Sejong City.
[Image source=Yonhap News]

Triple Decline in Labor, Business, and Property Income... Only Transfer Income Increased Due to Disaster Relief Funds

According to the '1st Quarter Household Trends Survey Results' released by Statistics Korea on the 20th, the average monthly income of households with one or more members nationwide (including agricultural, forestry, and fishery households) in the first quarter of 2021 was 4,384,000 KRW, a 0.4% increase compared to one year ago. Although the actual income earned by households decreased, total income slightly increased due to the rise in transfer income such as disaster relief funds.

Labor income (2,778,000 KRW) decreased by 1.3% compared to the same period last year. This is the largest decline ever recorded for the first quarter. In particular, labor income, which accounts for the largest share of total income, showed a more pronounced decline when viewed by the pre-statistical revision standards. For multi-person households (non-agricultural, forestry, and fishery) the average monthly labor income (3,405,000 KRW) sharply dropped by 3.5% compared to one year ago, marking the fourth consecutive quarter of decline.

Business income (767,000 KRW) decreased by 1.6%. Under the revised standards, business income recorded a decline for two consecutive quarters. Property income (33,000 KRW) also fell by 14.4%. This simultaneous decline in labor, business, and property income is the first since the second quarter of last year when household income was directly hit by COVID-19.

External Debt Hits Record High in Q1... Short-term External Debt Ratio Rises by 1.2 Percentage Points

In the first quarter of this year, South Korea's external debt reached a record high, and with increased foreign investment in Korean bonds, the ratio of short-term external debt also rose.

According to the 'International Investment Position' released by the Bank of Korea on the 21st, as of the end of March, South Korea's external debt was 565.9 billion USD, an increase of 21 billion USD compared to the end of December last year. During the same period, external claims (1.0307 trillion USD) also increased by 2.9 billion USD. As a result, net external claims, which is external claims minus external debt, stood at 464.8 billion USD, decreasing by 18 billion USD over three months.

External claims and external debt refer to 'external financial assets' related to overseas investments by residents of South Korea and 'external financial liabilities' related to domestic investments by foreigners, excluding equity, stocks (including funds), and derivative financial instruments whose prices are not fixed. Essentially, they represent external assets and liabilities with confirmed values at the current point in time.

The proportion of short-term external debt, which matures within one year, was 29.3%, similar to the level at the end of December last year. The ratio of short-term external debt to South Korea's reserve assets (foreign exchange reserves) increased by 1.2 percentage points to 37.1%. However, the government assessed the external debt soundness as being at a good level. The Ministry of Economy and Finance stated, "Despite the increase in external debt, South Korea's external debt soundness remains at a good level," adding, "The proportion of short-term external debt and the ratio of short-term external debt to foreign exchange reserves are similar to past averages and are favorable compared to other emerging countries."

[Image source=Yonhap News]

Producer Prices Rise for Six Consecutive Months, Inflation Pressure Continues... Experts Say "Inflation Status to be Confirmed Around July-August, Low Possibility of Prolonged Inflation"

Domestic producer prices have risen for six consecutive months. This is due to rising raw material prices and increased demand in upstream industries, which led to higher prices for manufactured goods. Since producer prices affect consumer prices with a time lag, domestic inflationary pressure is expected to increase for the time being.

According to the 'April 2021 Producer Price Index' released by the Bank of Korea on the 21st, the producer price index for April was 107.68 (2015=100), up 0.6% from the previous month. This marks six consecutive months of increase since November last year, the longest continuous rise since the seven-month increase from August 2016 to February 2017. Compared to the same month last year, it rose by 5.6%. The rise in producer prices was led by manufactured goods prices. As raw material prices increased, prices of primary metal products (3.2%) and chemical products (2.1%) rose significantly. Prices of agricultural, forestry, and fishery products, which had recently driven price increases, fell by 2.9%.

Experts are debating the recent rapid price increases. There is disagreement even within academia on whether the recent price rise is a natural occurrence during economic recovery or an inflation that accelerates currency depreciation due to its speed. Since the economy has been gradually recovering from the COVID-19 shock since the third quarter of last year, it is expected that the analysis of price increases will become clearer around July-August when the base effect from last year disappears. July is also a time when the consumer price increase rate for June is announced, making it a period to gauge the direction of inflation.

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