"Improvement in Private Consumption Due to Real Purchasing Power Increase This Year... No Need for Livelihood Support Funds"

KDI Report Published on the 13th: "High Inflation and Weak Consumption: Focusing on Relative Prices of Income and Consumption"

As real purchasing power stagnated, real private consumption remained sluggish, but this year it is expected to improve, leading to the assessment that there is little need for short-term policies supporting consumption, such as the livelihood recovery support fund.

On the 13th, Changseok Ma, a research fellow, and Kyucheol Jeong, director of the Economic Outlook Office at the Korea Development Institute (KDI), announced a report titled "High Inflation and Consumption Sluggishness: Focusing on Income and Consumption Relative Prices," which contained these findings.

According to the study, real purchasing power is expected to increase this year, and the sluggishness in private consumption is projected to improve. This year, due to the rise in semiconductor prices, relative prices will increase, leading to higher real purchasing power and improved conditions for private consumption. Relative price is a figure obtained by dividing income prices by consumer prices to measure real purchasing power in response to price fluctuations.

KDI analyzed that under a scenario where international oil prices (Dubai crude) rise by 6% annually and semiconductor prices increase by 37%, relative prices will rise by 0.5%. Director Jeong Kyucheol stated, "When semiconductor prices go up, income increases," adding, "Since semiconductor prices do not significantly affect consumer prices, the prices of products used remain the same, but if income amounts increase, it means consumption capacity expands."

The study also cited the projection that this year's economic growth rate will be in the mid-2% range, higher than last year's 1.4%, as a positive factor for improving real purchasing power. However, high interest rates are still expected to delay the recovery of private consumption. Accordingly, it was concluded that short-term measures to boost private consumption are unnecessary.

Research fellow Changseok Ma said, "Stimulus measures could rather provoke inflation, which is currently stabilizing," and added, "I believe it is necessary to focus more on structural reform policies that can increase real purchasing power from a mid- to long-term perspective."

KDI Economic Outlook Director Kyucheol Jeong also emphasized, "(Providing the livelihood recovery support fund) could reverse the pain endured from sluggish domestic demand to control inflation by causing high inflation again, so domestic demand stimulus measures do not fit the current economic situation," and stressed, "I have a negative view on various fiscal expansion measures." However, the research team clarified that their comments on stimulus measures were not aimed at any specific policies such as the opposition party's livelihood recovery support fund.

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