Rising Prices Frighten... Bottom 20% Income Households' Deficit Rate Expands from 49.7% to 57.6%

Statistics Korea Q4 Household Trends Survey... Bank of Korea "Inflation Increases Economic Burden on Low-Income Households"

[Image source=Yonhap News]

[Asia Economy Sejong=Reporter Kwon Haeyoung] In the fourth quarter of last year, 6 out of 10 households in the bottom 20% income bracket ran a deficit. This means that their consumption expenditure exceeded their disposable income, and the proportion of deficit households in this income group also increased significantly 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. Since earnings are low and there is a limit to reducing essential expenditures, the economic burden on low-income groups is further increasing.

According to the '2021 4th Quarter Household Trends Survey Results' announced by Statistics Korea on the 26th, 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 data by income level, the proportion of deficit households increased in all income brackets except for the top 20% (5th quintile), with the largest increase seen 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%.

Examining the household finances of the bottom 20% income group in the fourth quarter of last year, the average monthly income was 1,058,000 KRW, disposable income was 890,000 KRW, and household expenditure was 1,363,000 KRW. The deficit, calculated by subtracting household expenditure from monthly income, was 305,000 KRW. Looking at 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 are expected to rise more steeply in the future, the living conditions of low-income groups may worsen further. The bottom 20% income group earns little and has limited ability to reduce essential expenditures.

Domestic consumer prices have been rising 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 yesterday that it would keep the base interest rate unchanged at 1.25% 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 further fueling inflation.

According to the minutes of the Bank of Korea Monetary Policy Committee meeting released earlier, one committee member expressed concern about recent inflation, stating, "The economic burden caused by inflation is heavier on low-income groups who rely on earned income than on high-income groups with substantial assets," and "The income inequality compensation effect of government transfer payments may be partially offset by inflation."

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