Inflation expectations fall to 3.5 percent in May

Menu banners displayed in front of restaurants in central Seoul on May 7. [NEWS1]

Korea’s inflation expectations fell to 3.5 percent in May, the lowest in a year.

Inflation expectations inched down 0.2 percentage points from a month earlier, according to Bank of Korea data Tuesday. The figure decelerated for three months straight and is the lowest since 3.3 percent in May last year.

Inflation expectations are the rate at which people expect prices to rise in the future. The expectations matter because they affect people’s behavior in the present.

“A deceleration of consumer prices index to a 3 percent range for the first time in 14 months largely attributed” to the inflation expectations, said Hwang Hee-jin, head of the Bank of Korea’s Economic Survey Team.

Inflation grew 3.7 percent in April after peaking at 6.3 percent last July.

“But the reading only fell slightly because of the news on the rise of public utility fees, like electricity and gas, and yet-to-be-stabilized prices of services and products.” Hwang added price uncertainties remain depending on changes in oil prices and possibly an additional increase in public utility fees.

The government announced that second-quarter electricity rates and gas prices will rise 5.3 percent from a year earlier, citing high global energy costs and mounting losses at state utility firms, including the Korea Electric Power Corporation.

The Composite Consumer Sentiment Index (CCSI) was at 98.0 in May, up 2.9 points from a month earlier.

The CCSI measures the level of confidence that consumers have in six factors, including prospective spending and income, and economic forecasts. A reading above 100 indicates that people are generally more confident in spending.

Some 2,351 households responded to the one-week survey that began on May 8.

With the fall in inflation expectations growth, the Bank of Korea’s Monetary Policy Board is projected to keep the policy rate unchanged at 3.50 percent for the third consecutive meeting scheduled for Thursday.

Almost 90 percent of respondents to a survey by the Korea Financial Investment Association projected the central bank would keep the policy rate unchanged on stabilizing prices, the association said Tuesday.

Eighty-nine percent of the respondents said they expect the rate to be unchanged while the remaining 11 percent expected a 25-percentage points rate increase.

The survey involved one hundred people working in the bond market, including analysts and brokers, from May 12 through May 17.

“Expectations that the Monetary Policy Board would keep the rate steady rose after the May Federal Open Market Committee (FOMC) signaled an end to tightening and with the continued stabilization of consumer prices,” said the association in a statement.

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