Customers shop at a retail chain in Seoul, Monday. Yonhap

The retail sales index including sales at eateries declined for the 16th consecutive month in July. This was the longest period of downtrend since the nation's statistics agency began compiling private consumption data in 2010.

Analysts say private consumption is unlikely to recover, strained by eroded households' real income amid prolonged high interest rates and elevated prices for goods and services in the years of post-pandemic monetary tightening.

According to Statistics Korea, the retail sales index dropped by 2.3 percent in July compared to the same month last year.

Retail sales excluding sales at eateries on the other hand have been declining since September 2022, with only brief increases in June 2022 and February 2023. Sales at eateries have been falling since May of last year.

The stagnation in private consumption is largely attributed to reduced household income.

An increasing number of households are experiencing declines in their household surplus — the amount of money remaining after accounting for disposable income and consumption.

Disposable income is calculated as the amount remaining after deducting non-consumption expenditures, such as interest payments and social security premiums.

The statistics agency reported that the household surplus has also been decreasing for the past eight quarters.

As of the second quarter, Korean households reported a monthly surplus of approximately 1 million won ($746), marking a decrease of 18,000 won, or 1.7 percent, from the previous year.

The eight quarters of decline represent the longest streak since 2006.

High inflation contributed to the quarter-on-quarter drop. Over the past two years, real household income has shrunk by as much as 3.9 percent.

Joo Won at Hyundai Research Institute said the reduced household spending power is unlikely to rebound.

"Businesses confidence tied to domestic consumption sentiment remains largely subdued," Joo said.

gettyimagesbank

Further fueling the pessimism is a five-month decline in the economic coincident indicator, as measured by its cyclical component. This indicator reflects the current state of the economy. It has remained below 100 every month since March. A figure below 100 signifies that the economy is lagging behind its normal growth trajectory.

Some argue that the gloomy outlook could be alleviated by a recovery in semiconductor exports and facility investments. However, others contend that a rebound in the growth of certain export goods is insufficient to reinvigorate the overall stagnation in consumption.

"The rebounding growth is limited to a handful of chipmakers among other exporters," Joo said.

Worse yet, a delayed rate easing by the Bank of Korea continues to undermine household purchasing power, as a significant portion of income is directed toward paying interest on debt. The full impact of the anticipated easing, expected in the fourth quarter, will take several quarters to materialize.

"The central bank easing is practically the only factor that could reinvigorate consumer sentiment, but its effects will not be immediate," Joo said.