[Weekly Outlook] Focus on August Inflation Rate... Approval of Yoon Administration's First Budget Proposal

August Consumer Price Inflation Rate Announcement... Rising Trend in Focus
Q2 National Income Preliminary Figures, Weighted Average Interest Rate Released
Yoon Administration Approves Next Year's Budget... Shift to Fiscal Tightening

President Yoon Suk-yeol is arriving at the Presidential Office building in Yongsan, Seoul, on the morning of the 23rd. [Image source=Yonhap News]

Amid growing domestic and international economic uncertainties, the consumer price inflation rate for August will be announced next week. Attention is focused on whether the soaring inflation, which rose to 6.3% last month, will show signs of easing this month.

According to related ministries on the 28th, Statistics Korea will release the consumer price trends for August on the 2nd of next month. Last month, the consumer price index recorded 108.74 (2020=100), marking a 6.3% increase compared to the same month last year. This is the highest inflation rate since November 1998 (6.8%) during the foreign exchange crisis.

There is interest in whether this month's consumer price inflation rate will fall below last month's 6.3%. On the 25th, following the Monetary Policy Committee meeting, Lee Chang-yong, Governor of the Bank of Korea, said at a press conference, "The inflation rate for August will be lower than that of July," adding, "It is difficult to determine whether the peak was in July or will be in September as oil prices have fallen for two months, but there is a possibility it could happen sooner."

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho also recently stated, "The vicinity of 6.3% is almost the peak, and it seems highly likely to decline over time," adding, "Although external variables exist and it is difficult to say definitively, inflation may gradually stabilize after passing the Chuseok holiday hurdle."

However, the Bank of Korea expects inflation to remain at a high level until the first half of next year even after passing the peak, indicating that inflation instability is likely to continue for the time being.

Lee Chang-yong, Governor of the Bank of Korea, is attending a press conference held at the Bank of Korea in Jung-gu, Seoul, on the morning of the 25th, explaining the base interest rate hike and other matters. [Image source=Yonhap News]

The Bank of Korea will announce the 'Q2 National Income (provisional)' statistics on the 1st of next month.

The preliminary figure for the Q2 real Gross Domestic Product (GDP) growth rate (quarter-on-quarter), released on the 26th of last month, was 0.7%, significantly exceeding market expectations (0.3?0.4%).

Despite a sharp decline in exports due to the Ukraine crisis and global supply chain disruptions, private consumption increased following the lifting of social distancing measures, resulting in a higher-than-expected growth rate.

Since the provisional figure reflects data up to June's industrial activity trends, there is interest in how much it will differ from the preliminary figure. With economic slowdowns in major countries such as the United States and China causing a contraction in exports and raw material prices remaining high, there is a possibility that the economy may enter a downward trend.

The Bank of Korea recently forecasted growth rates of 2.6% for this year and 2.1% for next year, each lowered by 0.1 and 0.3 percentage points respectively from the previous forecasts announced in May.

In front of a loan counter at a bank in Seoul Photo by Yonhap News

The Bank of Korea will release the 'July Weighted Average Interest Rate of Financial Institutions' on the 30th.

In June, the average interest rate on household loans in the banking sector was recorded at 4.23% per annum, the highest level in 8 years and 9 months since September 2013 (4.26%).

As the Bank of Korea's base rate rose sharply, lending rates at commercial banks also increased significantly. However, since the disclosure of the interest rate spread between loans and deposits (loan rate - deposit rate) by banks began on the 22nd, there have been voluntary reductions by some banks, drawing attention to how much loan rates changed in July.

Additionally, the Bank of Korea will release the 'July Trade Index and Terms of Trade' on the 31st.

In June, the import value index rose 20.5% compared to the same month last year, reaching 167.54, continuing an upward trend for 19 consecutive months. However, the rate of increase was smaller than the previous month due to a slight easing in international oil prices.

On the 24th, at the '2023 Budget Proposal Party-Government Consultation' held at the National Assembly, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho is conversing with Kim Wan-seop, Director of the Budget Office at the Ministry of Economy and Finance.
[Image source=Yonhap News]

The government will approve the budget for next year at the Cabinet meeting on the 30th.

Since the Yoon Seok-yeol administration has emphasized shifting the fiscal stance to 'austerity,' there is keen interest in how much the budget has been reduced and adjusted.

Deputy Prime Minister Choo Kyung-ho stated at the ruling party-government meeting on the 24th, "The biggest feature of the Yoon Seok-yeol administration's first budget is the full transition of the fiscal stance from expansionary to sound fiscal policy, securing fiscal sustainability and firmly establishing the national creditworthiness of our economy."

Currently, South Korea's national debt has grown to nearly 1,050 trillion won, and the national debt per citizen exceeds 20 million won. The government plans to reduce the total expenditure in next year's budget to improve the management fiscal balance and national debt compared to previous administrations.