In the first quarter, income increased by 10%, but consumption was restrained

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Wallet closed due to inflation and economic uncertainty

4,825,000 won per month, all-time high
Consumer spending rose only 6.2% on high inflation

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In the first quarter of this year (January to March), the average monthly income per household increased by more than 10% from a year ago, recording the highest growth rate ever recorded. This is because earned income has risen sharply due to an increase in the number of employed people and wage increases, and the income of the self-employed has improved as social distancing is relaxed. However, the increase in household spending was small compared to the increase in income. They are passive in opening a ‘wallet’, apparently because of fears about inflation and future uncertainties. There are also concerns that prices will push up wages and lead to secondary inflation, where wages will trigger inflation again.

The National Statistical Office announced on the 19th that through the ‘Household Trend Survey’, the average monthly income of households with one or more people nationwide (including agriculture, forestry and fisheries) in the first quarter of this year was 4825,000 won, up 10.1% from the same quarter last year. This is the highest growth rate across all quarters since 2006 when the same baseline statistics were compiled. By item, the wage and salary income of office workers (3062,000 won) increased by 10.2%. Business income (862,000 won) earned by the self-employed also recorded a high 12.4% increase. The transfer income (780,000 won) also increased by 7.9% due to the payment of quarantine subsidies.

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One of the most notable among these is wage and salary income. It was the first time that labor income recorded double-digit growth. As the employment situation improved, the number of employed people increased and wages increased significantly. According to an analysis by the Ministry of Strategy and Finance, the number of employed people in the first quarter of this year increased by 1 million people from a year ago. The average wage increase rate for all workers in January and February this year reached 7.5%. It increased by 3.3 percentage points from 4.2 percent in the first quarter of last year.

However, due to the recent surge in prices, the actual increase in income was less than this. Real income growth after adjusting for inflation recorded 6.0%, about 4 percentage points lower than nominal income (par value income). As a result, the average monthly expenditure per household stood at 3496,000 won, an increase of 6.2%. In terms of consumption expenditure alone, the increase was only 4.7%. As for consumer spending, food and lodging (13.9%) and education (13.5%) increased significantly, while household goods and housekeeping services (-10.4%) decreased. This can be attributed to the increased number of outings and outdoor activities.

Lee Jin-seok, head of household income trends at the National Statistical Office, said, “The growth rate of consumption expenditure is the highest since 2011 as of the first quarter, but it is lower than the growth rate of income.” The average propensity to consume, which is the value of consumption expenditure divided by disposable income, was 65.6% in the first quarter, down 3.3 percentage points from a year ago.

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There is also an observation that a large increase in earned income could cause wage inflation. They are concerned about a vicious cycle in which high prices raise wages and high wages stimulate prices again. Yang Jun-seok, a professor of economics at the Catholic University of Korea, said, “If wage increases overlap in a situation where raw material prices are soaring, companies have no choice but to raise product prices.

Meanwhile, the ratio of the quintile for equivalised disposable income, a representative distribution index, was 6.20 times in the first quarter, an improvement of 0.10 times from a year ago. The lower the quintile multiplier, which is the value of dividing the income of the top 20% by the bottom 20%, means that the distribution is even.

Reporter Sejong Lim Joo-hyung

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