Consumer confidence improves as inflation concerns ease

Updated May  27, 2011

By Kim Tong-hyung

Koreans’ confidence in the economy rose in May as fears about inflation eased, the Bank of Korea (BOK) said.

The central bank’s consumer sentiment index (CSI) was measured at 104 for May, up from 100 in the preceding month and hitting the highest point since February’s 105.

Although consumer prices have been rising above the bank’s 2-4 percent target zone for every month through April, the pace of inflation has been slowing since it reached 4.7 percent in March, which represented a 29-month high.

Food prices are beginning to come down with the warmer weather helping crops, and government officials are hopeful of a decline in the cost of fuel and other commodities with the effects of the political unrest in the Middle East and Japan’s nuclear crisis starting to ease.

However, it would be premature to take the slight increase in the CSI as an indication of a healthy economy.

According to the BOK survey, consumers collectively expect consumer prices to rise by 3.9 percent over the next 12 months, a marginal improvement from the 4 percent polled in April, indicating they continue to brace for further squeeze in living standards. The inflation expectation rates measured in the past several months represent the highest level since 4.1 percent of June 2009, BOK officials said.

A sub-index measuring consumers’ assessments of current economic conditions rose by 12 points to 81 in May. An index on economy outlook was measured at 91, up from April’s 81.

An improvement in consumer confidence is critical for the central bank, which continues to endure difficult challenges in monetary policy with the higher prices being coupled with subdued economic activity.

Despite the soaring inflation, the BOK’s rate-setters have been reluctant to clamp down too hard on money supply when they judge the recovery as too fragile to withstand an increase in borrowing costs.

The bank kept its policy rate on hold at 3 percent for the second consecutive month in May.

BOK’s CSI figure was based on its survey of 2,047 households in 56 major cities during May 13 to 20.

2,334.46 9.45 -0.40%

Global Index

Dollar/Won KTB3Y Oil(WTI)
1,132.00 1.19% 38.56

Global Market

DOW JONES 27,685.38 -650.19 2.29%
SNP500 3,400.97 -64.42 1.86%
NASDAQ 11,358.94 -189.34 1.64%
NIKKEI 255 23,304.29 -190.05 0.81%
HANG SENG 24,918.78 +132.65 0.54%
SHANGHAI 3,251.12 -26.88 0.82%

INSIDE MOBILE - 이데일리 모바일 서비스 앱