"Worried About Rising Exchange Rate"... Consumer Sentiment Falls by Largest Margin in a Year

As the exchange rate rose sharply, consumer sentiment deteriorated by the largest margin since the martial law period. High inflationary pressure also appears to have contributed to the worsening sentiment. Expectations of house price increases rebounded despite the government's strong measures.

According to the "Consumer Sentiment Survey" released by the Bank of Korea on the 24th, the December Consumer Confidence Index (CCSI) stood at 109.9, down 2.5 percentage points from November (112.4). The index had risen by 2.6 percentage points in November due to the settlement of tariff negotiations and a third-quarter growth rate that exceeded market expectations, but fell again after one month.

Although the difference is large, this is the biggest drop since last December (a fall of 12.3 percentage points) when martial law was in effect. Excluding the special circumstance of martial law, it is the largest decline since the 2.9 percentage point drop in August last year.

The CCSI is an indicator calculated using six indices: current living conditions, expected living conditions, expected household income, expected consumer spending, current economic assessment, and outlook for the economy. A value above 100 indicates consumer sentiment is optimistic compared with the long-term average (2003–2024), while a value below 100 indicates pessimism.

Compared with November, among the six indices that make up the CCSI, the current economic assessment fell 7 percentage points to 89. The outlook for the economy fell 6 percentage points to 96, dropping below the long-term average. Expected household income (103), expected living conditions (100), and current living conditions (95) each fell by 1 percentage point. Expected consumer spending (110) showed no change.

Lee Hye-young, head of the Economic Sentiment Survey Team, explained, "Monitoring results show that consumers were worried about the rising exchange rate," adding, "This was directly reflected in the decline in the outlook for the economy." She also noted, "The fall in the current economic assessment was largely due to the widened price increases of everyday items such as agricultural, livestock and fishery products and petroleum products."

The housing price expectation index (121) rose 2 points. This means the proportion of consumers expecting house prices to rise one year from now increased. It rebounded one month after falling 3 points in November (119) due to measures such as the October 15 policy package. Analysts interpret this as reflecting that Seoul house prices have not eased despite the government's real estate measures. The team leader explained, "Expectations of rising real estate prices remain strong," and added, "We need to observe the effects of the measures a bit longer."

The interest rate outlook rose 4 points from the previous month to 102. This is understood to reflect the increased prominence of the possibility that the Bank of Korea's rate-cutting cycle has ended. The expected inflation rate for the next year was 2.6%—the same as in November.

Kang Jin-kyu, reporter josep@hankyung.com