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(LEAD) S. Korea's consumption falls for 4th month amid high inflation

All News 08:51 July 29, 2022

(ATTN: UPDATES with more details throughout; ADDS photos)
By Kim Soo-yeon

SEOUL, July 29 (Yonhap) -- South Korea's industrial output rose in June from the previous month, but retail sales declined for the fourth straight month as high inflation and rising interest rates weighed on consumption, data showed Friday.

Industrial production rose 0.6 percent in June from the previous month, compared with a 0.8 percent on-month increase in May, according to the data from Statistics Korea.

The June increase was led by robust production in the manufacturing sector, the backbone of the economy. Manufacturing output rose 1.8 percent, the fastest growth in six months, helped by brisk chip and auto production.

But retail sales, a gauge of private spending, fell for the fourth consecutive month in June. It marked the first time in more than 24 years that consumption slid for four months in a row.

Retail sales declined 0.9 percent last month, after a 0.2 percent on-month fall in May.

This file photo, taken July 20, 2022, shows citizens shopping for vegetables at a discount store chain in Seoul. (Yonhap)

The statistics agency said consumption declined as sales of autos fell and hotter-than-usual summer weather sapped outdoor activity.

"Consumer sentiment was also weakened due to rising inflation and the central bank's rate hikes," Eo Woon-sun, a senior Statistics Korea official, told reporters.

Asia's fourth-largest economy has maintained recovery momentum, but economic uncertainty remains high due to the ongoing war between Russia and Ukraine and the Federal Reserve's aggressive monetary tightening, he added.

The South Korean economy faces the risk of stagflation, a mix of slowing growth and high inflation, as deteriorating external economic conditions have raised downside risks to growth.

Inflationary pressure has rapidly built up due mainly to soaring oil and commodity prices.

Consumer prices jumped 6 percent on-year in June, the fastest pace in nearly 24 years and an acceleration from a 5.4 percent on-year spike in May.

In July, the Bank of Korea (BOK) delivered an unprecedented 0.5 percentage-point rate hike in a bid to tame inflation. It marked the sixth rate increase since August last year.

A rate hike is meant to curb inflation but could increase debt-servicing burdens and slow down economic growth as it weighs on private consumption.

The government earlier presented a bleaker economic assessment, saying the Korean economy is feared to lose steam as heightened external economic uncertainty could dent investment and export growth.

Earlier this week, the International Monetary Fund lowered its 2022 economic growth outlook for South Korea to 2.3 percent from 2.5 percent.

The South Korean government cut its 2022 economic growth outlook to 2.6 percent, while sharply raising its inflation forecast to a 14-year high of 4.7 percent. The BOK forecast the economy to grow 2.7 percent and inflation to rise 4.5 percent this year.

This file photo taken July 11, 2022, shows stacks of containers at a port in South Korea's southeastern city of Busan. (Yonhap)


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