Rising Costs Squeeze Households: Real Disposable Income Falls 2.1% Despite Wage Increases

October's Inflation Rate Rises to 2.8%

As food and dining costs surge, the rise in average wages, including bonuses, fails to keep pace with the late-session selling pressure on living expenses. While salaries have increased, the burden of household costs remains persistent. Despite the growth in workers' average earnings, the rate of increase in regular pay has fallen short of keeping up with inflation. Overall household income has risen, but real earnings have decreased. Recent hikes in processed food prices, dining costs, and fuel prices have prevented wage increases from translating into improved purchasing power for households.

According to the 'October Consumer Price Index' released by the National Data Agency on October 3, consumer prices rose 2.8% year-on-year. While this marks a decrease from September's 2.9%, the rise in processed food and dining costs expanded, each increasing by 2.9%. This is the highest processed food inflation rate in 11 months.

Oil prices surged 14.9%. Diesel increased by 19.7%, and gasoline by 11.6%. In contrast, agricultural product prices fell 7.5%. Vegetable and fruit prices helped lower the overall inflation rate, but processed food, dining costs, and fuel prices continued their upward trajectory.

Declining Purchasing Power of Labor Income Despite Average Wage Increases

According to the Labor Force Survey of Enterprises released by the Ministry of Employment and Labor last month, the average monthly wage per employee in August was 40.93 million won, a 3.9% increase from the previous year. Real wages, which reflect inflation, also increased by 0.8%, marking a return to growth after four months.

The rise in average wages was largely influenced by the increase in bonuses and performance-based incentives. Special allowances for permanent workers increased by 32.4%, while fixed allowances, including base pay and regular allowances, grew at a rate of only 2.4%. This is 0.7% lower than the consumer price index (3.1%) for the same month. The change in the timing of special allowance payments at some companies also impacted the average wage increase.

There was also a disparity in wage growth based on the size of the business. Wages at establishments with 300 or more employees increased by 5.3%, while those with less than 300 employees saw a rise of only 3.0%. The wage growth rate for temporary and daily workers was even lower at 1.3%.

Financial Insights: A Deep Dive into Household Income Trends

The household income survey, compiled on a per-household basis, confirms the persistent weakness in labor income. In the second quarter of this year, the average monthly income per household was 52.95 million won, a 4.5% increase from the previous year, and real income also rose by 1.5%. However, the growth rate of labor income was a mere 0.8% in nominal terms. Real labor income, which factors in inflation, decreased by 2.1%, marking two consecutive quarters of negative growth.

The overall increase in household income was influenced by the expansion of transfer income, including government support payments. Real transfer income in the second quarter rose by 16.9%, while real consumer expenditure growth remained at a modest 0.4%.

While disposable household income and surplus increased, the purchasing power of labor income has diminished. The October inflation figures, recently announced, show an expanded rise in the cost of processed foods and dining out. Amidst rising average wages, the rate of increase in regular pay is lagging behind inflation, and households' real labor income has decreased for two consecutive quarters.