'Public Utility Price Hike' Impact... Expected Inflation Rebounds After One Month

Government Announces Reduced Public Utility Price Hikes Starting New Year
Falling Inflation Expectations Rebound After One Month

As public utility fee hikes began in earnest at the beginning of the year, the expected inflation rate, which reflects consumers' price outlook, rebounded after a month.

According to the 'Consumer Sentiment Survey' released by the Bank of Korea on the 26th, the expected inflation rate for January recorded 3.9%, up 0.1 percentage points from 3.8% in December last year.

The expected inflation rate, which indicates the forecasted consumer price increase over the next year, peaked at a record high of 4.7% in July last year, then fell to 3.8% in December, but returned to an upward trend after a month.

Although the recent stabilization of prices for agricultural, livestock, fishery products, and petroleum has somewhat slowed the inflation trend, the anticipated hikes in many public utility fees such as subway, bus fares, electricity, gas, and water and sewage charges are believed to have caused inflation concerns to spread again.

The proportion of responses regarding major items expected to affect consumer price increases over the next year also showed public utility fees (75.9%) as the highest, followed by petroleum products (33.5%) and agricultural, livestock, and fishery products (29.2%). Compared to the previous month, the response proportion for public utility fees increased by 8.6 percentage points.

Hwang Hee-jin, head of the Bank of Korea's Statistics Survey Team, explained, "Electricity rates rose in January, and news about transportation fare increases during the first half of the year has likely influenced consumer sentiment. The expanding price increase of processed foods also seems to have had an impact."

Photo by Hyunmin Kim kimhyun81@

Although inflation remains high, consumer sentiment continued to recover. In January, the Composite Consumer Sentiment Index (CCSI) stood at 90.7, up 0.5 points from December last year.

The CCSI is an indicator calculated using six major individual indices?current living conditions, living conditions outlook, household income outlook, consumption expenditure outlook, current economic conditions, and future economic outlook?out of the 15 indices that make up the Consumer Sentiment Index (CSI). A figure above 100 indicates optimistic consumer sentiment compared to the long-term average (2003?2021), while below 100 indicates pessimism.

The interest rate outlook index was 135, down 1 point from December last year. After rising to 151 in November last year, it has declined for two consecutive months. Although the Bank of Korea's Monetary Policy Committee raised the base interest rate seven times in a row until this month, the outlook has lowered as there is a high possibility of slowing the pace of rate hikes going forward.

Team leader Hwang said, "Recently, market interest rates have shown a downward trend, and news related to slowing the pace of rate hikes has emerged, which seems to have significantly lowered expectations for interest rate increases. However, since it still records in the 130s, it remains at a high level."

Despite the real estate market stagnating due to high interest rates, the housing price outlook index (68) increased by 6 points over the month. This appears to be influenced by the government's recent significant easing of regulations to prevent excessive declines in real estate prices.

Team leader Hwang said, "At the beginning of this month, the government lifted regulatory zones and announced plans to supplement real estate tax measures, which seem to have influenced housing price outlook and sentiment. However, since interest rates remain at a high level, it is necessary to observe further whether the market direction will change."

A scene from a traditional market in Seoul. Photo by Hyunmin Kim kimhyun81@