Have Prices and Interest Rates Peaked?... December Inflation Expectations in the 3% Range

3.8%, Down 0.4%P from November
Declining for Two Consecutive Months... Lowest Since May
Consumer Sentiment Rebounds After 3 Months

On the 11th, amid high inflation and ongoing economic slowdown, customers are shopping at the Nonghyup Hanaro Club Yangjae branch in Seocho-gu, Seoul. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Seo So-jeong] The expected inflation rate (the anticipated consumer price increase over the next year) fell for the second consecutive month due to a slowdown in inflation and a decline in the exchange rate. The outlook for interest rate levels also saw the second-largest drop on record as market perceptions grew that interest rates had peaked.

According to the Bank of Korea's "December Consumer Sentiment Survey" released on the 27th, the expected inflation rate was recorded at 3.8%, down 0.4 percentage points from 4.2% in November. This is the first time since June (3.9%) that the expected inflation rate has fallen into the 3% range and is the lowest since May (3.3%).

The expected inflation rate, which forecasts the consumer price increase over the next year, hit a record high of 4.7% in July, then declined for two consecutive months in August (4.3%) and September (4.2%). It rose slightly in October (4.3%) but dropped again in November (4.2%) and continued to decline this month.

Hwang Hee-jin, head of the Bank of Korea's Statistics and Survey Team, explained, "Current perceptions of inflation remain high due to public utility rate hikes and dining-out services since October, but expected inflation has decreased as consumers see price stabilization in essential goods such as agricultural and livestock products and petroleum products." She added, "The sharp drop in the consumer price increase rate from 5.7% in October to 5.0% in November, along with the decline in the exchange rate, seems to have contributed to lowering expected inflation."

The overall Consumer Confidence Index (CCSI) for December rose 3.4 points to 89.9 from 86.5 in November, rebounding after three months. The CCSI is calculated using six major sub-indices out of the 15 that make up the Consumer Sentiment Index (CSI): current living conditions, outlook on living conditions, household income outlook, consumption expenditure outlook, current business conditions, and future business conditions outlook.

A figure above 100 indicates optimistic consumer sentiment compared to the long-term average (2003?2021), while below 100 indicates pessimism. Hwang analyzed, "Despite high domestic and international uncertainties such as sluggish exports and concerns over global economic slowdown, consumer sentiment rose slightly compared to the previous month due to continued favorable employment conditions and a slowdown in inflation."

Notably, the interest rate outlook index plunged 18 points to 133, marking the second-largest drop on record. The largest decline was a 20-point drop during the global financial crisis (November 2008) and the COVID-19 outbreak (March 2020). This index exceeds 100 when more respondents expect interest rates six months from now to rise compared to those expecting a decline. The Bank of Korea notes that despite the drop, the index remains at a high level.

The housing price outlook index rose by 1 point to 62. This index had set record lows for five consecutive months from July to November. Due to the widening decline in apartment sale prices and weakened buyer sentiment, it remained at a low level this month. Hwang said, "Although the housing price outlook index rebounded for the first time in eight months amid record-breaking declines in apartment sale prices, it is difficult to interpret this as meaningful. Considering transaction volumes and supply-demand indices, the decline is still expanding, so we need to monitor the situation further, and interest rates could also be a variable."

The employment opportunity outlook index rose 4 points to 70, supported by favorable employment indicators in the face-to-face service sector, especially in accommodation and food services.

The current business conditions index (51) and future business conditions outlook index (62) increased by 5 points and 8 points respectively compared to the previous month.

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