[Hurry Tightening Household Budget] When Salary Rises 2.1%, Perceived Inflation Jumps 4.6%... Wallets Are Drying Up

Real Wages Decline for Six Months Amid Soaring Prices
Even with Higher Salaries, Spending Money Decreases
High Inflation Likely to Persist Until Next Year
Concerns Over Domestic Demand Slump as Consumer Sentiment Drops

A in their 20s, working at a small-to-medium enterprise in Daejeon, raised their annual salary by nearly 3% this year but could not be entirely happy. After taxes, the monthly raise amounted to about 120,000 won. Considering the sharply rising prices since the beginning of the year, their living standard has not significantly improved compared to before. A said, "I saw that the prices of daily necessities, which rose at the start of the year, increased again within three months, so I am switching to cheaper products," adding, "With rising utility bills and food costs exceeding 10,000 won for a single lunch, it feels like prices are rising faster than my salary, which only makes me sigh."

The perceived burden on ordinary people due to high inflation is growing. The rate of price increases has outpaced salary raises, leading to a decline in living standards. This is reflected in the fact that real wages have recorded negative growth for six consecutive months this year. Real wages refer to the value of wages adjusted for inflation, representing the actual purchasing power workers feel.

According to the Business Labor Force Survey compiled by the Ministry of Employment and Labor on the 6th, the average monthly real wage per worker from January to August this year was 3.53 million won, down 1.6% compared to the same period last year. During this time, nominal wages rose by 2.1%, while the consumer price index increased by 3.7%. This means that despite nominal wage increases, the value of wages has effectively decreased due to high inflation. The real wage growth rate began to decline in March (-2.6%), slightly eased in April and May (each -0.2%), but the rate of decline increased again from June. Real wages are likely to fall further in the second half of the year as prices have shown a gradual rebound since July (2.3%), when inflation hit its lowest point this year.

When comparing real wages to the living cost index rather than the consumer price index, the financial strain on ordinary people becomes even more apparent. The living cost index, which consists of 144 items mainly purchased by ordinary households, rose by 4.6% last month, 0.8 percentage points higher than the overall inflation rate of 3.8% during the same period. Although the living cost index had been steadily declining from January (6.1%) to July (1.8%), it began to rise significantly in the second half of the year, with increases of 3.9% in August and 4.4% in September. Major contributors to the rise in the living cost index last month included fresh fruits and vegetables such as apples (72.4%), lettuce (40.7%), and watermelon (36.1%), as well as public utility fees like taxi fares (20.0%), electricity bills (14.0%), and city gas (5.6%). Additionally, services such as beauty fees (5.6%) and pharmacy dispensing fees (3.6%) increased, with 123 out of the 144 items (85.4%) showing price hikes. Although the government forecasted a decline in agricultural product prices starting in October, food prices instead rose further, increasing the burden on ordinary households.

Disposable income has also shrunk due to the combined effects of high inflation and high interest rates. Disposable income refers to the money left after deducting non-consumption expenditures such as taxes, social security contributions, and interest payments from personal income. A decrease in disposable income reduces purchasing power and limits savings or discretionary funds. According to Statistics Korea, the average disposable income for all households in the second quarter of this year was 3.831 million won, down 2.8% compared to a year earlier. This is the first time in eight quarters since the second quarter of 2021 (-1.9%) that the growth rate of disposable income has been negative. Since taxes paid to the government have not significantly increased compared to last year, the decline in real wages is ultimately leading to a decrease in disposable income. However, despite the reduction in disposable income, consumer spending increased by 4.8%, suggesting that some surplus funds may have shifted toward real estate investments or other areas.

The problem is that low-income groups with lower wages inevitably feel the burden of rising prices more acutely. The average monthly wage growth rate for regular workers this year has outpaced that of temporary and daily workers for seven consecutive months (January to July). Only in August did the wage growth rate for temporary workers (2.5%) surpass that of regular workers (1.3%), but the average wage for temporary workers (1.762 million won) remains only 44.3% of that for regular workers (3.97 million won). The smaller the absolute wage amount, the more likely it is that even a 500 to 1,000 won increase in food prices will cause them to tighten their wallets.

This is also reflected in the negative shift in consumer sentiment caused by high inflation. According to the Bank of Korea, the consumer sentiment index fell below 100 to 99.7 last month for the first time in four months. This indicates a pessimistic turn in consumer sentiment. Given the slow recovery in exports, there is concern that the cycle of high inflation → reduced consumption → domestic economic slowdown → lower growth rates could take hold. The economic outlook for next year is also not optimistic. Although the 10-year U.S. Treasury yield slightly declined to 4.669% as of the 2nd (local time), rapid fluctuations in the bond market are increasing global economic uncertainty. Experts emphasize the need for proactive government-led economic stimulus measures despite fiscal challenges. Professor Sung Tae-yoon of Yonsei University's Department of Economics stated, "If inflationary pressures such as the prolonged Middle East conflict are not sufficiently addressed, they could act as long-term constraints on economic recovery," adding, "The government needs to prepare support measures to alleviate the burden on the ordinary economy, such as the decline in disposable income caused by inflation."