Inflation expectations at 10-year high, consumers pessimistic

Inflation expectations hit a decade-plus high in June.

The reading was 3.9 percent, up from 3.3 percent in May, according to the Bank of Korea. It was last at 3.9 percent in April 2012.

Inflation expectations are a measure of the outlook for price increases over the following 12 months.

The central bank cited the Russia-Ukraine war, more expensive raw materials and crude oil and supply bottlenecks as some of the reasons for the rise in inflation expectations.

Respondents to the survey pointed to petroleum products, agricultural, livestock and fisheries products and public utility charges as some of the categories of goods that will drive inflation.

Korea's inflation was 5.4 percent in May, the highest since the 5.6 percent in August 2008. The central bank projected last week inflation to be higher in the second half than in the first half due to a continued rise in crude oil and wheat prices.

"Inflation expectations are inflation forecasts over the next year, but they often reflect the current flow of prices," said a spokesperson for the Bank of Korea.

The government is introducing countermeasures to curb the inflation, like the fuel tax cut, but uncontrollable external factors could further influence the inflation, the spokesperson added.

The Bank of Korea is scheduled to hold a monetary policy board meeting on July 13. Central banker Rhee Chang-yong indicated a further rise in the base rate earlier this month, saying that curbing inflation is currently the bank's focus and that rates are still low.

The central bank raised the rate five times since it began its current round of monetary tightening last August. The rate currently stands at 1.75 percent.

The Composite Consumer Sentiment Index (CCSI) was down 6.2 points to 96.4 points in June.

It measures the level of optimism that consumers have about the performance of the economy. A figure above 100 indicates that people are more optimistic about the economic situation.

The last time the CCSI slid below 100 was in February 2021, when it was 97.2 points.

CCSI has six components, including current living standards, projected income and consumption and economic forecasts. They all fell in June from the previous month.

The survey of 2,305 households was conducted from June 13 through June 20.

BY JIN MIN-JI [jin.minji@joongang.co.kr]