Interest Rates, Housing Prices, Inflation... All Are Stirring

Bank of Korea 'May Consumer Sentiment Survey Results'

Consumer Confidence Index (CCSI) Rises 3 Points to 105.2... Highest Since June 2018

Interest Rate Outlook, Housing Price Expectations All Increase Simultaneously

Expected Inflation Rate Rises Again to 2.2%... Highest Since May 2019

[Asia Economy Reporter Kim Eun-byeol] As the economic recovery becomes more evident, concerns that prices including housing and interest rates will rise in the future have also increased. This reflects the judgment that inflation concerns caused by competitive monetary easing worldwide and the sharp rise in agricultural and raw material prices will not be just temporary. Consumer sentiment in May rose to the highest level in about three years, and the first quarter gross domestic product (GDP) unexpectedly grew by 1.6% compared to the previous quarter, but the burden of housing prices, inflation, and interest rates seems to fall directly on individuals.

According to the 'Consumer Sentiment Survey Results' released by the Bank of Korea on the 25th, the Consumer Confidence Index (CCSI) for May was 105.2, up 3.0 points from the previous month. This is the highest since June 2018 (106.3). The CCSI is a sentiment indicator calculated using six major indices from the Consumer Sentiment Index (CSI), where a value above the baseline of 100 indicates optimism compared to the long-term average, and below 100 indicates pessimism. The CCSI has been rising for five consecutive months since January this year and has maintained an 'optimistic' trend above 100 since March.

The major CSIs that make up the CCSI all rose simultaneously. The Current Living Conditions CSI rose 1 point to 93 compared to the previous month, and the Living Conditions Outlook CSI also increased by 1 point to 97. The Household Income Outlook CSI (98) and Consumption Expenditure Outlook CSI (108) also rose by 1 point and 2 points, respectively. The Current Economic Situation CSI (85) and Future Economic Outlook CSI (99), which reflect perceptions of the economic situation, jumped significantly by 8 points and 5 points, respectively. The Employment Opportunity Outlook CSI, which shows how likely employment will be in the future, rose 6 points to 92.

As the economic situation improves, more consumers expect interest rates to rise further. The Interest Rate Level Outlook CSI, which indicates the outlook for interest rates six months from now compared to the current level, rose 6 points to 118 from the previous month. Since lowering the base interest rate to 0.50% per annum in May last year, the Bank of Korea has maintained the lowest base interest rate in history for a year. However, market interest rates have already been on the rise due to inflation. According to the Korea Financial Investment Association, the 3-year government bond yield was 1.116% on the 24th, up 11 basis points (bp) from 1.006% three months ago (1 bp = 0.01 percentage points).

Housing prices, which seemed to have stalled, are also stirring again. According to the apartment price trend in the third week of May (as of the 17th) by the Korea Real Estate Board, apartment prices in Seoul rose 0.10%, returning to the level just before the announcement of the 2·4 Housing Supply Plan. Gyeonggi Province rose 0.32%, and Incheon jumped 0.47%, showing a large increase. As apartment prices rose, the Housing Price Outlook CSI, which had been declining, rebounded by 2 points to 124, marking a recovery after five months.

Consumers' expected inflation rate also exceeded 2% by a wide margin. Perceptions of the consumer price increase over the past year and expected inflation over the next year both stood at 2.2%, each up 0.1 percentage points from the previous month. Price perception is the highest since July 2019, and the expected inflation rate is the highest since May 2019. The response proportions for major items expected to affect consumer price increases over the next year were agricultural, livestock, and fishery products (52.0%), petroleum products (35.9%), and rent (33.5%), in that order.

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