Expectations across all categories of CPI-All Items inflation moved up QoQ.
Singaporeans’ one-year-ahead headline inflation expectations rose to 3.1% in March 2019 compared to the 2.9% recorded in December 2018, and the first quarter long-term (2012-18) average of 3.4%, according to the DBS-SKBI Singapore Index of Inflation Expectations (SInDEx) Survey by the Sim Kee Boon Institute for Financial Economics (SKBI), Singapore Management University (SMU).
DBS-SKBI SInDEx survey, which surveys respondents on their perceptions of the Consumers Price Index (CPI)-All Items inflation, found that inflation expectations across all categories have moved up QoQ. The survey is a joint research study conducted by SMU researchers in collaboration with the Monetary Authority of Singapore (MAS) and the Behavioral Insights Team.
The overall CPIEx Inflation Expectations, after adjusting for potential behavioral biases and re-combining across components, was at 3.07% in March 2019, similar to the CPIEx headline inflation rates polled.
“This also suggests that Singaporeans’ inflation expectations are well-grounded from both the aggregated and the components-wise comparisons,” the researchers noted. “Excluding accommodation and private road transportation related costs, the one-year-ahead core CPIEx inflation expectations was recorded at 3.1% in March 2019 compared to 3% reported in the December 2018 survey.”
For a subgroup of the population who own their accommodation and use public transport, the one-year-ahead CPIEx core inflation expectations inched up to 3% from 2.9% in December 2018, findings found. According to researchers, this subgroup’s expectations of core inflation closely resembles the Singapore Core Inflation Expectations, as unlike the general population they are not exposed to private road transportation or accommodation expenses.
Amidst slowing growth and uncertainty about the global demand outlook, inflation expectations appear broadly stable, according to DBS chief economist and managing director of Group Research Taimur Baig. “As commodity prices firm and expectations of global demand revival (led by China) sets in, conditions for a mild increase in expectations are in place,” he said.
For the longer horizon, the five-year-ahead CPIEx inflation expectations in the March 2019 survey moved up to 4.1% from 3.6% in December 2018. The new polled number is lower than the long-term (from 2012-18) average of 4.2%.
The five-year-ahead DBS-SMU CPIEx core inflation expectations, which excludes accommodation and private road transportation related costs, pared to 3.8% in March 2019 from 3.5% in December 2018. Overall, the composite Five-year-Ahead SInDEx5 increased to 3.9% in March 2019 from 3.5% in December 2018, still polling lower than its historical average of 4.1%.
According to SMU assistant professor of finance and principal investigator of the DBS-SKBI SInDEx Project, Aurobindo Ghosh, there have been several factors that might have led to an overall downbeat forecast by IMF World Economic Outlook in April 2019 for global growth.
“This sentiment of a moderation in global growth has also been communicated by the US Federal Reserve Board as a primary driver opting for halting rate hikes and preferring patience in a short run and a data driven outlook for the longer run monetary policy with persistently low inflation,” he explained. “We have observed that the impact of this declining growth and possible downturn is also felt in the decline in the yield spread of Singapore government bonds (difference between the yield of 10-year and 1-year bonds).”
Overall, inflation has been largely benign since the tightening of monetary policy in the two previous semi-annual policy reviews by MAS in 2018, the researchers noted, adding that some possible pass-through of domestic price pressures from the quarterly DBS-SKBI SInDEx survey have been observed, along with a dashboard of other measures of inflation expectations, for both behaviorally adjusted and unadjusted series.
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