As Inflation Eases, 'Consumer Sentiment' Recovers... Rising for 3 Consecutive Months

The Bank of Korea Consumer Sentiment Index Rises for 3 Consecutive Months
Electricity and Gas Price Increases Pose Variables for Inflation Trends

Customers are shopping at Yangjae Hanaro Mart in Seocho-gu, Seoul. Photo by Jinhyung Kang aymsdream@

Although concerns about an economic slowdown in Gyeonggi Province have increased recently, the consumer sentiment index has risen for three consecutive months as inflationary pressures have eased and expectations for domestic demand recovery have grown.

The general public's expected inflation rate for consumer prices over the next year has fallen to 3.5%.

According to the "May Consumer Survey Results" released by the Bank of Korea on the 23rd, the Composite Consumer Sentiment Index (CCSI), which comprehensively reflects consumers' economic sentiment, rose by 2.9 points from the previous month to 98 this month.

The CCSI is an indicator calculated using six major individual indices?current living conditions, living conditions outlook, household income outlook, consumption expenditure outlook, current economic situation assessment, and future economic outlook?out of the 15 indices that make up the Consumer Sentiment Index (CSI).

A figure above 100 indicates optimistic consumer sentiment compared to the long-term average (2003?2021), while a figure below 100 indicates pessimism. Although this month's index also fell below 100, indicating a prevailing negative view, it has shown an upward trend for three consecutive months: 90.2 in February, 92.0 in March, 95.1 in April, and 98 in May.

Specifically, the Current Living Conditions CSI, which reflects current living conditions compared to six months ago, stood at 88, rising for three consecutive months since February. Additionally, the Living Conditions Outlook CSI, Household Income Outlook CSI, and Consumption Expenditure Outlook CSI, which indicate expectations for six months ahead, all showed upward trends.

The Current Economic Situation Assessment CSI (64) and Future Economic Outlook CSI (74) increased by 6 points each from the previous month, and the Employment Opportunity Outlook CSI (78) rose by 4 points.

Despite concerns about an economic recession due to high interest rates and high inflation continuing since last year, the market is interpreted as gradually growing more optimistic about economic improvement.

Hwang Hee-jin, head of the Bank of Korea's Statistics and Survey Team, explained, "Although there have been news reports of declining exports, trade deficits, and downward revisions of growth forecasts by various institutions, the declaration of the COVID-19 endemic seems to have revived expectations for domestic demand recovery, especially in face-to-face service industries. The easing of inflation is also a contributing factor."

Hwang added, "In this survey, consumption propensity increased mainly in dining out, clothing, and travel expenses, suggesting a slight recovery trend. However, since interest rates and inflation remain high, it is necessary to observe whether this trend will continue."

Expectations for housing price increases are also growing amid ongoing expectations for the end of monetary tightening. The Housing Price Outlook CSI rose by 5 points from the previous month to 92. After falling to 61 in November last year, it began to rise sharply from January this year, approaching the baseline of 100.

The Price Level Outlook CSI fell for three consecutive months to 146, down from 153 in February. The Bank of Korea explained, "Although petroleum prices have dropped significantly, the Price Level Outlook CSI declined slightly due to increases in electricity and gas rates and continued price rises in personal services such as dining out."

On the other hand, the Interest Rate Outlook CSI rose by 3 points from the previous month to 114.

Regarding the rise in interest rate expectations despite strong hopes for the Bank of Korea's rate freeze amid easing inflation, Hwang said, "There were two rate freezes by the Bank of Korea, which caused the figure to drop last month, but the slight rise this time reflects the perception that inflation has not yet fully stabilized."

This month's expected inflation rate fell by 0.2 percentage points from the previous month to 3.5%.

Expected inflation refers to the anticipated consumer price inflation rate one year ahead, based on information currently known by economic agents such as businesses and households.

The expected inflation rate rose to 4.7% in July last year, then fell to 3.8% in December. It rose again for two consecutive months to 3.9% in January and 4.0% in February, before declining for three consecutive months starting in March.

This is interpreted as being influenced by last month's consumer price inflation rate dropping to 3.7%, falling into the 3% range for the first time in 14 months since February last year.

The response proportions for major items expected to influence consumer price inflation over the next year were highest for public utility charges (76.1%), followed by agricultural, livestock, and fishery products (30.4%) and petroleum products (28.5%).

Hwang said, "Since the government announced plans to raise electricity and gas rates starting from the 16th, the expected inflation rate has only slightly declined. Because the increases have not yet been fully reflected overall, the magnitude and timing of additional hikes in the second half of the year remain factors that increase uncertainty."

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