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S. Korea’s consumer sentiment turns sour in September: BOK index

Expectations remain high that inflation, housing prices will rise

Sept. 26, 2023 - 17:14 By Im Eun-byel
Customers are shopping for groceries at a supermarket in Seoul, Sept. 20. (Newsis)

South Korean consumers turned pessimistic about overall economic conditions in September for the first time in four months, amid woes over weak exports and rising prices.

The composite consumer sentiment index (CCSI) in September stood at 99.7, down 3.4 points from the 103.1 a month before, the Bank of Korea’s report showed Tuesday.

“The concerns about the weak exports and contraction in purchasing power due to the rise in prices pulled down the composite consumer sentiment index,” Hwang Hee-jin, a senior official on the BOK’s statistics research team, said.

"This month, the state of living and sentiment about the general economic situation influenced the index more than other factors," Hwang said.

The CCSI measures consumer expectations concerning the performance of the economy, calculated through a sum of six variables, including living standards, prospective household incomes and prospective spending. A reading over 100 indicates an improving outlook overall, while a reading below 100 denotes a deteriorating one.

It was the first time in four months that the CCSI dropped below 100, since hitting 98 in May. The figure stood at 100.7 in June and advanced to 103.2 in July and 103.1 in August, surpassing 100 for three consecutive months, indicating an optimistic projection on the economy.

Inflation expectations continued to stay at 147, the same as a month before, reflecting concerns that inflation is on the rebound in Korea following the surging international oil prices and rising agricultural produce prices, the BOK explained.

The inflation expectations are closely monitored as they can result in more inflationary pressure on the economy, affecting people’s behavior.

Related figures show that inflation on the rise in Korea. In August, Korea’s consumer price growth rebounded to 3.4 percent, after staying in the 2 percent range in the previous two months. It is expected to remain in the 3 percent range this year due to the rise in international oil prices.

The BOK’s report also showed consumers expect prices to rise by 3.3 percent in September -- the same as the month before. Public utility fees, petroleum products and agricultural produce were pointed out to be major reasons of the rise in prices.

Meanwhile, expectations about the recovery of the housing market remain strong. The figure stood at 110 in September, up 3 points from 107 a month before. It is the fourth consecutive month for the figure to surpass 100.

The figure reflects consumers’ expectations about housing prices on a scale from 0 to 200. A reading over 100 shows more people expect housing prices to climb rather than decline.

Since hitting an all-time low of 61 in November 2022, the figure has been on the rise for 10 months straight.

"The expectations on the recovery of the housing market have strengthened as related buying prices have been rising across the country, including the greater Seoul area," Hwang said. "But we have to see if the upward trend will continue, considering that interest rates are still high and there are many variables."

The expectations for Korea’s policy rate stood at 118 -- the same as the month before -- indicating that consumers project the base rate to climb in the near future. The figure surpasses 100 when more people respond that rates will be higher in six months than now.

The BOK has been holding the key rate at 3.5 percent since February, but it is pressured by the hawkish stance from the US Federal Reserve, reluctant to loosen up on its aggressive monetary tightening policy.

Expectations about employment opportunities stood at 77 this month, inching down 7 points from a month before, as youth employment has been weak and the number of employees in the manufacturing industry has been on the decline.

For the BOK's report on CCSI, 2,357 out of 2,500 households responded to the one-week survey that began on Sept. 11.