Consumer sentiment on rise after MERS outbreak, drought

Consumer sentiment in Korea is improving gradually since the containment of Middle East respiratory syndrome (MERS), Bank of Korea data showed Friday.

The composite consumer sentiment index (CCSI) rose to 103 in September, up 1 point from the previous month’s 102 and gaining for a third consecutive month after plummeting 6 points to 99 in June at the height of the MERS outbreak.

An index reading above 100 - the long term average from the year 2003 to 2014 - signifies that consumers are optimistic about prospects for the economy.

Components of the index including the state of living score, state of living outlook and spending expectation index all showed an increase of 1 point, rising to 91, 99 and 107 respectively.

The present economic view index rose by 2 points to 73 from a previous 71, while the interest rate outlook index rose by three points to 107 from a previous 104, indicating more Korean consumers expected interest rates to rise in the next six months.

The household savings CSI and savings outlook CSI rose to 88 and 94 respectively, each up by 1 point, signifying people have saved and expected to save more in six months.

But the household debt CSI and debt outlook CSI also increased by 2 points each to 105 and 100.

The Inflation outlook CSI remained steady at 132, but housing price CSI rose by 1 point to 117, while the earnings outlook fell by 1 point to 115.

Koreans expected consumer prices to rise 2.4 percent during the next 12-month period, down 0.1 percentage point from the previous month’s expectation of 2.5 percent. Inflation rate expectations remained steady at 2.5 percent.

Nearly 27 percent of the consumers surveyed expected the inflation rate to be within the 1 to 2 percent range in the next year, while close to 28 percent expected the rate to be in the 2 to 3 percent range.

Major factors contributing to consumer price increases were seen as public utilities costs, housing prices and industrial goods.

“As MERS has been contained, we have seen recovery in the number of foreign tourists,” said Choo Seong-jae, a Bank of Korea official in charge of compiling economic statistics.

“Improvements in the state of living index and economic view index have helped the overall consumer sentiment index remain above the reading of 100 for three straight months,” he added.

Indeed, recent data by the Ministry of Strategy and Finance showed that department store sales jumped by 16.3 percent from September 7 to 20 compared with a year before period, while sales at discount retail chains rose 1.1 percent year-on-year.

A 30 percent cut in consumption taxes on cars, home appliances and some luxury items since late-August has further fueled consumer spending, with sales of domestic cars jumping 34 percent from September 1 to 20 compared with a year before period.

Sales of electronic appliances also rose, with those of large-screen televisions spiking by 30 percent after the tax cuts, the data also showed.

Foreign tourist numbers are showing a steady recovery. In June, the number fell 41 percent for a year earlier and in July it fell 53.5 percent. But from September 1 to 20, the fall was only 0.6 percent.

The Korean government remained cautiously optimistic despite a number of external uncertainties.

“We are seeing improvements in spending and investments since MERS and the drought (in summer),” said vice finance minister Joo Hyung-hwan in a meeting with major economic groups.

BY PARK JUNG-YOUN [park.jungyoun@joongang.co.kr]