Expected inflation at 20-month low in Dec., consumer sentiment up 2.3 points

[Photo by Yonhap]

South Korean consumer expectations for the inflation rate in the coming year eased to a 20-month low in December on lower fuel prices, while consumer sentiment improved, indicating optimism for the economy.

According to a survey released by the Bank of Korea (BOK) on Wednesday, consumers’ expected inflation for the following year stood at 3.2 percent, down 0.2 percentage point from the previous month, marking the lowest level since 3.1 percent in April 2022.

The expected inflation rate peaked at 4.7 percent in July 2022 before gradually declining to 3.3 percent in July 2023 and 3.4 percent in October.

The survey was conducted on 2,500 households between December 11 and 18.

“The slowdown is most likely due to the decline in petroleum prices led by the fall in international fuel prices,” said Hwang Hee-jin, head of statistics at the BOK. “Prices of agricultural products, processed foods, and dining services, however, remain high and utility rate hikes are also a potential variable. It remains to be seen if this trend will continue moving forward.”

The composite consumer sentiment index (CCSI) for December stood at 99.5, up 2.3 points from the previous month.

The CCSI factors in six major individual indices - current living conditions, living conditions outlook, household income outlook, consumption expenditure outlook, current economic assessment, and future economic outlook - among the 15 indices that comprise the consumer sentiment index (CSI).

A reading above 100 indicates optimism in consumer sentiment while a reading below 100 indicates pessimism.

Expectations for interest rates going higher eased to 107 from 119 in December. The index rises above 100 when more people expect interest rates to rise in six months times than those expecting a decline.

Hwang noted that the sharp decline is largely due to the expectations of the end of U.S. interest rate hikes.

The index for prospective housing prices fell 9 points to 93, meaning that more consumers expect housing prices to fall in a year’s time than those that expect prices to go up.

The decline comes on prospects of tighter lending regulations and high interest rates.