South Korea's consumer sentiment hits 1-1/2 year high

South Korea's consumer confidence leapt in October to its highest since mid-2012 as tame inflation and low interest rates boosted sentiment in a recovering economy. The composite consumer index (CCSI), compiled from a survey by the Bank of Korea, rose to 106 in October from 102 the previous month - the highest index reading since May 2012, the Bank of Korea said on Monday.
A reading above the neutral line of 100 indicates consumers feel more positive in the coming month than the long-term average sentiment calculated from 2003 to 2012. The central bank's index has so far stayed above the neutral line this year and was last below 100 in December 2012.
South Korea expects its latest batch of month-end indicators this week, including industrial output and trade data which are all expected to "surprise on the upside," Credit Suisse said in a note. The strong consumer sentiment data came in just after the Bank of Korea estimated the South Korean economy grew a seasonally adjusted 1.1 percent in the third quarter of the year, mostly supported by domestic demand.
"For consumption to improve you have to have better incomes, whether that comes from employment or something else - you have to have that spending power," said Im No-jung, an economist at IM Investment & Securities in Seoul. "The influence from better exports down the road will increasingly spread to households and in turn result in more spending." Actual inflation remaining well below the bottom tier of the central bank's inflation target of 2.5 to 3.5 percent has kept sentiment positive, along with low expected inflation of 2.9 percent reported in this month's survey.
The Bank of Korea lowered interest rates to the current 2.50 percent when it embarked on an easing cycle last year, bringing rates to their lowest since early January 2011 and easing the debt burden on households. Fourth-quarter growth is expected to show a steady improvement as conditions in advanced economies pick up, and in return, boost the export-reliant local economy, even if it is at a modest pace.