Expected Inflation Highest in Over 9 Years... Will Interest Rate Hikes Accelerate? (Comprehensive)

Interest Rate Level Outlook at All-Time High
Inflation Perception at Highest in Over 9 Years

[Asia Economy Reporter Seo So-jeong] The expected inflation rate for the next year, which reflects consumers' anticipated consumer price increase, has reached its highest level in 9 years and 7 months. With the interest rate outlook also hitting an all-time high, there are forecasts that the Monetary Policy Committee meeting on the 26th will not only raise the base interest rate but also accelerate future rate hikes.

According to the "May Consumer Sentiment Survey Results" released by the Bank of Korea on the 24th, the expected inflation rate this month was recorded at 3.3%, up 0.2 percentage points from the previous month. This is the highest figure in 9 years and 7 months since October 2012 (3.3%). The expected inflation rate has been rising for five consecutive months since January (2.6%). It surpassed 3% in April (3.1%) and continued its upward trend this month.

The inflation perception index, which reflects consumers' judgment on the consumer price increase over the past year, also rose by 0.2 percentage points from the previous month to 3.4%, the highest since January 2013. Lee Jong-hyun, head of the Bank of Korea's Statistics Survey Team, explained, "The rise in expected inflation is influenced by many consumer responses indicating that future inflation will continue as the perceived prices have increased. Expected inflation may continue due to expanded external uncertainties and ongoing inflationary factors, but it can be adjusted depending on changes in the base interest rate."

The interest rate outlook index (146) also rose by 5 points from the previous month, breaking the all-time record. If more people expect interest rates to rise in six months than those expecting a decline, this index exceeds 100. This is interpreted as consumer perception being influenced by expectations of additional base rate hikes and persistent inflation.

The housing price outlook index (111), which jumped by 10 points last month, fell by 3 points in one month. Lee said, "Although nationwide apartment sale prices are stable, the decline is estimated to be due to increased supply expectations following the temporary exclusion of multi-homeowners from the capital gains tax surcharge. We need to observe how government policies and regulatory levels will continue to affect this index."

Meanwhile, the Consumer Confidence Index (CCSI) for this month was 102.6, down 1.2 points from April (103.8), marking a decline for the first time in three months. The consumer confidence index is based on 100; values above 100 indicate optimism compared to the long-term average, while values below 100 indicate pessimism. Compared to April, among the six components of the consumer confidence index, the consumer expenditure outlook (116) rose by 2 points, and the current economic conditions judgment (74) remained at the same level.

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