Wallets closed amid high inflation… real consumption falls for the first time in five years

Real consumer spending, adjusted for last year’s price increases, fell for the first time in five years, a new report showed. Analysts say a combination of stubbornly high inflation and a shrinking population also curbed household outlays.

According to the “Household Trends Survey and Annual Expenditure in Q4 2025” released on the 26th by the National Data Agency, average monthly consumption expenditure last year rose 1.7% year on year to 2,939,000 won. However, real consumption expenditure excluding the impact of inflation declined 0.4%. In nominal terms spending increased, but once inflation is taken into account it actually fell.

The last time real consumption declined was in 2020 (-2.8%), when COVID-19 restrictions on outdoor activities led households to tighten spending. Real consumption rose 1.4% in 2021, then the pace of growth slowed to 0.7% in 2022, before coming in at 2.1% in 2023 and 1.2% in 2024.

Real spending on food and non-alcoholic beverages, which is highly sensitive to inflation, fell 1.1% from a year earlier. Real consumption also dropped sharply in education (-4.9%) and household goods and domestic services (-6.1%). With the school-age population shrinking, spending on private academies for middle and high school students declined, and fewer households with children also reduced spending on child-care services. Real spending also decreased in recreation and culture (-2.5%), among other categories.

In Q4 last year, average monthly household income rose 4.0% year on year to 5,422,000 won. By category, earned income increased 3.9% and business income 3.0%. Earned income had stayed in the 1% range for two consecutive quarters after Q1 last year (3.7%), but jumped to 4% in Q4, helped by an increase in the number of employed people. Transfer income rose 7.9%. After adjusting for inflation, real income grew just 1.6%.

With the gap between upper- and lower-income groups widening, the income quintile ratio for equivalized disposable income—a key distribution indicator—expanded to 5.59 in Q4 from 5.28 a year earlier. It was the first deterioration for a fourth quarter since the statistics were revamped in 2019.

Reporter Kim Ik-hwan lovepen@hankyung.com