Korean households weighed down by rising prices despite income surge

South Korea’s average monthly household income increased slightly in the third quarter to above 5 million won ($3,843) and real income rose for the first time in more than one year since the second quarter of 2022. High inflation, however, is putting pressure on the households as they spend more on living expenses.

According to Statistics Korea on Thursday, the average monthly income per household nationwide reached 5.03 million won in the third quarter, up 3.4 percent from the same period a year ago.

The increase comes after a 0.8 percent decline in the second quarter, driven by the increase in employment, wage growth, and pension increases, which led to a 3.5 percent and 11.7 percent increase in earned income and transfer income, respectively.

Adjusted for inflation, real income rose by 0.2 percent year-on-year. Real income, which declined 3.9 percent in the second quarter, has not increased significantly since a 6.9 percent increase in the second quarter of 2022.

This suggests that the improvement is due to better employment conditions and a 5.1 percent increase in the national pension and basic pension, rather than wage hikes.

“Total income in the third quarter turned upward due to a steady increase in employment and a strengthening of the social safety net, such as public pension increases and enhanced basic livelihood security,” said an official from the Ministry of Economy and Finance. “Despite the slowdown in price decline, the increase in total income led to the first increase in real income in five quarters.”

The average monthly expenditure per household in the third quarter was 3.87 million won, up 4 percent from a year ago.

Consumption expenditures, which include spending on goods and services, increased 3.9 percent, while non-consumption expenditures, such as taxes and interest payments, increased 4.3 percent.

Sectors that significantly influenced the increase in consumption expenditure include entertainment and culture, groceries, housing, and education.

Entertainment and culture spending rose 16.7 percent on year in the third quarter, driven by increased domestic and international travel.

Grocery spending also grew by 6 percent during the same period due to higher prices across the board. Monthly rent and heating and cooling expenses also rose by 7.9 percent each.

Among non-consumption expenditures, household interest expenses remained high.

The average monthly interest cost per household, which surpassed 100,000 won in the third quarter of 2022, rose to 131,479 won in the second quarter of 2023 and slightly fell to 128,988 won in the third quarter.

Average monthly disposable income per household, which is income minus consumption expenses, stood at 1.16 million won, up 1.2 percent from a year ago.

After a steep 13.8 percent on-year decline in the second quarter, it turned upward again in the third quarter. As a result, the proportion of households with deficits that spend more than disposable income, was 24.6 percent, down 0.7 percentage point from 25.3 percent in the third quarter of 2022.

This is the fifth quarter since the second quarter of 2022 that the deficit household ratio has declined.

In the income distribution by quintile, nominal income increased for all of the five quintiles except the lowest quintile.

The income of the fifth quintile with an average monthly income of 10.84 million won increased by 4.1 percent on year in the third quarter, driven by a 35 percent increase in property income, including interest and dividends.