S Korean inflation expectations hit 2-decade high

By Reuters   July 26, 2022 | 06:39 pm PT
S Korean inflation expectations hit 2-decade high
People pose for photographs on a sunny spring day amid the coronavirus disease (COVID-19) pandemic at a Han river park in Seoul, South Korea, April 19, 2022. Photo by Reuters/Kim Hong-Ji
South Koreans' consumer inflation expectations hit their highest in at least 20 years while their confidence in economic prospects hit a near two-year low, a monthly central bank survey showed on Wednesday.

In the Bank of Korea's (BOK) July survey, South Koreans expected inflation to average a median 4.7 percent in the next 12 months, up fast from 3.9 percent in the previous survey and hitting the highest since data releases began in February 2002.

The same survey showed an index measuring how South Koreans assess future economic conditions and living standards fell to 86.0 in July from 96.4 in June, hitting its lowest since September 2020 and scoring the largest fall since March 2020.

Economists said the survey underscored a deepening dilemma for policymakers in fighting still high inflation while taking care of the cooling economy.

"These findings show economic growth would begin losing momentum from later this year and that the focus of policymakers could gradually move toward supporting the economy from next year, if not immediately," said Park Yoon-min, a fixed-income analyst at Kyobo Securities.

The BOK raised the policy rate by an unprecedented 50 basis points this month. Governor Rhee Chang-yong said after the hike while fighting inflation remained the bank's top priority, it would try to avoid further big raises going forward.

The survey results come a day after central bank estimates showed pent-up consumer spending and a massive supplementary budget helped South Korean economic growth unexpectedly pick up in the second quarter.

Strong private spending, up a sharp 3.0 percent in the April-June period from a 0.5 percent loss in the prior quarter, followed the removal of almost all Covid-19 restrictions in April, which suggests that pace of growth is unlikely to continue.

More than 2,400 households participated in the survey from July 11 to 18.

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