Korea’s expected inflation rate rises again after 8 months

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The expected inflation rate, an outlook for consumer prices for the year ahead, has risen again after eight months and consumer sentiment has deteriorated due to a series of utility price hikes amid the geopolitical risks from the Israel-Hamas conflict.

According to the results of an October consumer trend survey released by the Bank of Korea (BOK) on Wednesday, the expected inflation rate for October was 3.4 percent, up 0.1 percentage point from a month earlier and the inflation rate’s first increase in eight months.

“Uncertainty about the rise in international oil prices has increased due to factors such as the Israel-Hamas war,” according to Hwang Hee-jin, head of the statistics team at BOK. “Public utility rate hikes were announced in October, and the prices of agricultural and other products have also risen, leading to an increase in the number of respondents who believe that prices will continue to rise.”

Consumer perceptions of the overall economy have worsened due to weak domestic demand and geopolitical risks. The composite consumer sentiment index (CCSI) for October was 98.1, down 1.6 points from 99.7 in September. This is the index’s third consecutive decline after rising to 103.2 in July. A CCSI reading above 100 indicates optimism in consumer sentiment, while a reading below 100 indicates pessimism.

Compared to September, five out of CCSI’s six major individual indices have declined. The future economic outlook (70) dropped by four points, while the outlook on living conditions (90) and current economic conditions (64) each declined by two points. Current living conditions (88) and household income outlook (98) both dropped by one point, with only the consumption outlook (113) rising by one point.

As the possibility of the United States maintaining high-interest rates becomes apparent, expectation that interest rates will rise are growing. The interest rate outlook index increased by 10 points in one month to 128 from 118. This is the highest reading since January 2023’s 132 figure, and the largest increase in two years and seven months since March 2021. The index rises above 100 when more people predict that interest rates will rise in the next six months compared to those who expect a decrease. “With the United States hinting at a prolonged period of high interest rates and long-term Treasury rates also rising, it seems that people felt that interest rates will remain at a high level for the time being,” Hwang said.

The housing price outlook index fell two points to 108. The index had risen for 10 consecutive months after falling to a record low of 61 in November 2022, marking its the first fall in 11 months.

The BOK data is based on the response of 2,500 households surveyed nationwide between October 10 and 17.