Inflation continues to top expectations
By Kim Tong-hyung
People’s expectations of long-term price increases ran above the government’s target for the fifth consecutive month, reinforcing fears that inflation will continue to bubble over in the foreseeable future.
According to the Bank of Korea’s (BOK) inflation expectation index for November, the public believes prices will climb at about 4.1 percent over the coming 12 months, compared with the central bank’s 4 percent target. Inflation exceeded expectations for nine consecutive months before coming in at 3.9 percent in October.
The BOK has been rendered powerless to halt the damage to savings and spending power with the heightened uncertainty surrounding the eurozone debt crisis and struggling U.S. economy eliminating the option of raising interest rates. The bank’s rate-setters kept the policy rate at 3.25 percent for the fifth consecutive month in November and the streak could soon reach six.
Inflation expectations are considered important because inflation is often a self-fulfilling prophecy: if people believe inflation will continue to rise, price rises and higher wage demands could make the situation harder to control. Inflation expectations have been above 4 percent since July, although the November figure represented a 0.1-point drop from October’s 4.2 percent.
Inexorable price pressures suggest that consumption will continue to be subdued in the coming months, a concern for the country in desperate need of an economic catalyst.
``Although the inflation expectation figures have slightly dipped, likely due to the influence of consumer price inflation cooling in October, the level continues to remain high,’’ said an official from the BOK’s statistics research team.
The elevated level of inflation expectations dampened the BOK report that was headlined by consumer confidence reaching a six-month high. The consumer sentiment index (CSI), a measure for consumers’ overall economic outlook, reached 103 for November, up from 100 the previous month and representing the highest level since 104 in May.
Despite the heady mix of negatives affecting the world economy, consumers are clearly feeling better about the economy now than they were in August and September, when the eurozone debt crisis blew up and decimated stock markets, according to BOK officials.
However, a sub-index on private spending fell below 100 for the second-straight month. A reading below 100 indicates that pessimist outnumbers optimists.
An index on the assessment of current economic conditions rose by 9 points from October to 75, while an index measuring economic outlook reached 86 in November, up from the preceding month’s 78.
An index gauging inflation levels stood at 140, down 5 points from October as consumer price index (CPI) readings eased. The BOK’s survey was based on a poll of 2,002 households in 56 cities nationwide conducted from Nov. 11 to 18.