Soaring Prices and Tight Budgets... 6 out of 10 Households in the Bottom 20% Income Bracket Face 'Household Deficits'

Statistics Korea, Household Income and Expenditure Survey for Q4 Last Year
Deficit Household Ratio Rises in All Income Brackets Except Top 20%... Lowest Income Group Shows Largest Increase in Deficit Households

[Image source=Yonhap News]

[Asia Economy Sejong=Reporter Kwon Haeyoung] In the fourth quarter of last year, the number of households in the bottom 20% income bracket with consumption expenditures exceeding disposable income significantly increased compared to the previous quarter. This is due to the disappearance of the disaster relief fund effect and the domestic consumer price inflation soaring to the 3% range. To make matters worse, Russia's invasion of Ukraine has caused a sharp rise in energy prices such as oil, pushing up domestic prices and raising concerns that the livelihood of low-income households will become even more difficult.

According to the '2021 4th Quarter Household Trends Survey Results' released by Statistics Korea on the 25th, the proportion of deficit households in the fourth quarter of last year was 24.4%, up 2.8 percentage points from the previous quarter (21.6%).

Looking at the income brackets, the proportion of deficit households increased in all income groups except for the top 20% (5th quintile), with the largest increase in the lowest income group. The bottom 20% income group (1st quintile) rose from 49.7% in the third quarter to 57.6% in the fourth quarter, an increase of 7.9 percentage points. The 21-40% income group (2nd quintile) increased from 22.1% to 26.3%, the middle class 41-60% (3rd quintile) from 16.7% to 17.5%, and the 61-80% (4th quintile) from 11.4% to 13.1%, increasing by 4.2, 0.8, and 1.7 percentage points respectively. In contrast, the top 20% income group (5th quintile) decreased by 0.3 percentage points from 8.1% to 7.8%.

In particular, the deficit household rate in the bottom 20% income group far exceeded 50%, with nearly 6 out of 10 households running a deficit. In the fourth quarter of last year, the average monthly income of the bottom 20% income group was 1,058,000 KRW, disposable income was 890,000 KRW, and household expenditure was 1,363,000 KRW. Accordingly, the deficit amount calculated by subtracting household expenditure from average monthly income was 305,000 KRW. Examining the expenditure details, the largest spending was on food and non-alcoholic beverages (22.9%), housing, water, electricity, and gas (19.4%), health (13.2%), and transportation (6.6%).

An official from Statistics Korea explained, "The bottom 20% income group mostly consists of people aged 60 or older or single-person households in their 30s. The effect of the disaster relief fund paid in the third quarter of last year disappeared in the fourth quarter," adding, "The rise in domestic consumer prices may also have influenced the increase in the proportion of deficit households."

The problem is that as prices continue to rise more steeply in the future, the livelihood of low-income households may worsen further. The bottom 20% income group has low earnings and limited ability to reduce essential expenditures.

Domestic consumer prices have risen for four consecutive months, with 3.2% in October, 3.8% in November, 3.7% in December last year, and 3.6% in January this year. The Bank of Korea announced the base interest rate freeze (annual 1.25%) yesterday and raised its consumer price inflation forecast for this year from 2.0% to 3.1%. This is the first time in about 10 years since April 2012 (3.25%) that the Bank of Korea has projected inflation in the 3% range. The Russia-Ukraine conflict has pushed international oil prices close to $100, and rising energy prices are fueling inflation further. To make matters worse, both ruling and opposition presidential candidates have announced plans to add supplementary budgets, signaling additional government spending, raising concerns that inflation may intensify.

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