Korea’s consumer sentiment at 13-month high in June as inflation eases

[Photo by Park Hyung-ki]

South Korea’s consumer sentiment hit the highest in 13 months in June, as post-pandemic activities gathered pace and inflation eased, central bank data showed Wednesday.

According to the results of a June consumer trend survey released by the Bank of Korea, the composite consumer sentiment index (CCSI) stood at 100.7 in June, up 2.7 points from 98 in May. This marks the fourth consecutive month of rise and the first time in 13 months that the index has exceeded 100 since May last year when it was 102.9.

“It is largely attributed to expectations for eased economic downturn, a recovery in consumption due to expanded face-to-face activities and a slowdown in inflationary pressures,” said Hwang Hee-jin, head of the statistics team at the BOK.

The CCSI factors in six major individual indices - current living conditions, living conditions forecast, household income forecast, spending forecast, current economic assessment, and economic outlook -among the 15 indices that comprise the consumer sentiment index (CSI). If the index is higher than 100, It means optimistic consumer sentiment outnumber pessimists, compared with the long-term average between 2003 and 2022, and vice versa if it is below 100.

All six indices that make up the CCSI gained from May, mainly led by improved current economic assessment and outlook. The index of spending forecast also increased 2 points to 113 while living conditions forecast, household income forecast, and current living conditions gained 1 point each to 93, 98, and 89, respectively.

Interest rate outlook index experienced a sharp decline of 9 points to 105 from 114 over the month. This index rises above 100 when more people expect interest rates to rise in six months than those expecting a decline. The sharp decline implies that the proportion of people anticipating interest rate hikes has dropped significantly over the past month.

Hwang explained that the decline was attributable to the BOK’s decision to keep the benchmark interest rate unchanged for three consecutive times and the U.S. Federal Reserve’s decision to maintain its policy rate target range at the current level of 5.00 percent-5.25 percent.

However, housing price outlook index rose by 8 points to 100 as the proportion of consumers predicting a housing price increase in a year’s time has grown to be equal to those predicting a decline. After hitting a record low of 61 in November last year, the index has shown a continuous upward trend for seven months.

“The increase is likely influenced by the reduced decline in housing prices across the country and the upward shift in apartment transaction prices in Seoul after 16 months of decline,” said Hwang.

The expected inflation rate, which indicates the outlook for the coming year, remained at 3.5 percent, the same as in May. It reached 4 percent in February before declining for three consecutive months and remained stagnant.

“Prices of dining out and personal services are still high, and transportation fares are expected to increase in the coming months, so perceived inflation seems to be still high,” said Hwang.

The BOK survey was conducted between June 13 and 20 on 2,500 households nationwide.