Soaring Korean Prices... Expected Inflation Hits Largest Increase in 4 Years and 10 Months (Comprehensive)

CCSI Rises for Three Consecutive Months Under 'With Corona' Policy
Bank of Korea: "Inflation Rises, Consumer Sentiment Not Fully Recovered"
Household Income Outlook and Future Economic Outlook Remain Unchanged

[Asia Economy Reporter Jang Se-hee] As the consumer price inflation rate reached the 3% range, expected inflation has also surged accordingly. It is anticipated that living conditions will become even more difficult due to persistently high prices. Since high inflation can dampen economic activities such as consumption and investment, voices are emerging that the Bank of Korea should respond with the ‘interest rate card’ in the future.

According to the ‘November 2021 Consumer Survey’ released by the Bank of Korea on the 23rd, expected inflation rose by 0.3 percentage points from the previous month to 2.7%. This increase is the largest since January 2017, when it rose from 2.5% to 2.8%. Expected inflation has remained in the 2% range for 10 consecutive months since entering the 2% range in February this year. The inflation perception, which reflects the awareness of price increases over the past year, also rose by 0.3 percentage points to 2.7%.

Although the Consumer Confidence Index (CCSI) has risen for three consecutive months due to expectations of With Corona (gradual return to daily life), the outlook for living conditions recorded 97, down 1 point from October’s 98, due to soaring prices.

Hwang Hee-jin, head of the Statistical Survey Team at the Bank of Korea’s Economic Statistics Bureau, explained, "As inflation continues, the living conditions part did not rise significantly," adding, "Ultimately, consumption sentiment has not fully improved due to the impact of rising prices."

Soaring Inflation Dampens Consumer Sentiment... Need to Respond with Interest Rates

This month’s Consumer Confidence Index rose by 0.8 points to 107.6 from 106.8 last month. However, compared to the 3.0-point increase in October, the rate of increase has actually slowed. This is interpreted as soaring prices limiting improvements in consumer sentiment. The Consumer Confidence Index is a comprehensive indicator of consumers’ economic sentiment; a value above 100 indicates optimism compared to the long-term average, while below 100 indicates pessimism.

Among the six components that make up the Consumer Confidence Index, the outlook for consumer spending rose by 3 points, leading the overall index increase. The current economic situation assessment also rose by 1 point. The outlooks for current living conditions, household income, and future economic conditions remained at the same level as the previous month.

The employment opportunity outlook rose by 4 points to 98, reflecting expectations of economic recovery. The interest rate level outlook rose by 5 points due to expectations of additional base rate hikes. The housing price outlook fell by 9 points as the housing price uptrend continues but is constrained by rising interest rates and household loan regulations.

Meanwhile, experts agree that considering domestic and international situations such as high inflation and the U.S. Federal Reserve’s early rate hikes, interest rates should be normalized. Jerome Powell, who recently secured reappointment, stated in a position paper that the Fed will use necessary measures to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched. This has led to expectations that the Fed will raise the base rate faster than anticipated starting mid-next year to stabilize prices.

In this regard, Kim Sang-bong, professor of economics at Hansung University, said, "Inflation in our country is as serious as in other countries," adding, "Considering high inflation and early rate hikes overseas, interest rates should be normalized to between 1.25% and 1.75%."

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