By Kim Tong-hyung
Korean consumer confidence has slipped slightly as expectations grow that soaring inflation could hurt the country’s economic recovery, the Bank of Korea (BOK) said Wednesday.
People are glum about the rising prices, personal finances and spending capabilities and this apparently links to a less-than-rosy outlook for the economy, the central bank’s survey suggested.
The consumer sentiment index (CSI), which measures consumers’ attitude on their individual financial situation and outlook on the overall economy, edged down to 108 for January from 109 seen in December. A reading above 100 indicates that there are more optimists than pessimists, and the index maintained its 100-plus status it has had since May 2009.
Inflation appeared as the biggest concern of those quizzed, as they collectively expected consumer prices to rise by 3.7 percent over the next 12 months, higher than the 3.3 percent predicted by those asked in December. This represented the highest expected inflation rate since 3.8 percent in July 2009.
A sub-index for measuring the inflation outlook came in at 153 in January, up sharply from December’s 140 and the highest figure since 160 in July 2008.
The central bank earlier this month forecast consumer prices to grow 3.5 percent this year, compared to 2.9 percent in 2010, and its inflation target is to keep prices below, but close, to 3 percent.
The survey indicated that consumers were expecting a moderate increase in household income, but also felt that their living conditions have deteriorated slightly and will continue to do so for the immediate future. A sub-index measuring the overall economic outlook dipped by 8 points to 97 in January, according to the BOK report, which indicated worsening expectations for the economy.
However consumers are expecting improvements in the value of real estate and stocks.
``The inflation in the prices of food and other basic goods appear to be having a direct impact on consumer sentiment,’’ said an official from BOK’s statistics division.
Earlier this month, the BOK’s monetary-policy committee lifted its policy rate by a quarter of a percentage point to 2.75 percent, which was accompanied by President Lee Myung-bak’s declaration of an ``all-out war’’ against inflation, manifested in policies to stem an increase in utility bills, university fees and other types of consumer spending.
Although BOK Governor Kim Choong-soo continues to insist that inflation is becoming a serious problem for the economy, it bears further watching whether the bank will show more boldness in rate hikes when the country continues to struggle addressing its household debt problem.