The One-year-Ahead headline inflation is expected to be at 3.9% in June, compared to the 4.1% estimate in March, according to the Singapore Index of Inflation Expectations (SInDEx) survey.
SInDEx puts less weight on more volatile components like accommodation, private road transport and food and energy-related expenses.
The 44th SInDEx survey is conducted online every quarterly. It surveys some 500 individuals representing a cross-section of Singaporean households, which helps researchers try to understand the behaviour and sentiments of Singaporeans.
The survey is led by principal investigator Dr. Aurobindo Ghosh, assistant professor of finance (education), Lee Kong Chian School of Business at the Singapore Management University (SMU).
DBS Group Research is a co-sponsor and research partner with the Sim Kee Boon Institute for Financial Economics (SKBI) at SMU.
According to a statement released by DBS on July 18, the survey’s reading is the first dip amid an upward trend seen since September 2020.
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The 3.9% forecast is still a higher reading than the historical second quarter average of 3.3% from 2012 to 2021. It is also just shy of the 4% rate exceeded in March for the first time since December 2012.
The reading compares to the Monetary Authority of Singapore’s (MAS) survey of professional forecasters in June, which showed that the median forecast for CPI-All items inflation for 2023 was 3%. MAS core inflation for 2023 was estimated to come in at 2.8%.
A subgroup of those surveyed indicated that their One-year-Ahead CPIEx core inflation expectations were lowered to 3.8% in June from March’s 3.9%. This particular subgroup is made up of people who own their own accommodation and use public transport.
According to DBS, this sub-sample measurement is “potentially more representative” than the full sample measurement due to Singapore's high homeownership and public transport ridership.
“This downward paring though is marginal and the level is in line with the overall inflation expectations and has been largely flat, despite strong growth in housing prices leading to further property cooling measures from policymakers in December 2021,” says DBS.
Based on data from the Department of Statistics (Singstat), Singapore’s average CPI-All items from January to May this year was 5.0% higher y-o-y. The latest May monthly inflation was 5.6% higher y-o-y.
Overall CPIEx inflation expectations
The overall CPIEx inflation expectations dipped 0.2 percentage points q-o-q to 5.5% in June from March. This is after adjusting for potential component-wise behavioural biases and re-combining across components.
According to the statement released by DBS, inflation expectations of all individual components remained the same as the last quarter at 5.0%, except transportation inflation which saw a slight decline in inflation expectations to 8.0% from 9.0% polled in the March survey.
The free response behaviourally adjusted overall inflation expectations remained at 5.0% in June, unchanged from March. Based on the survey’s findings, consumers based their expectations on multiple global factors and ground realities.
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Looking ahead
Looking ahead, Singaporean consumers surveyed felt that the pandemic will have a “moderately negative impact” on the country’s economic growth due to the current global uncertainty and economic disruptions, despite policy stabilisation to mitigate the impact of the pandemic.
Consumers in Singapore also felt that their expenditures will increase due to price increases despite possible cutbacks on consumption.
In the survey, the team at DBS and SMU found that the inflation for transport, healthcare and housing is expected to be slightly negative.
In addition, the impact on overall One-year-Ahead inflation and Five-year-Ahead inflation is expected to be negative but limited.
Respondents are, however, divided regarding the impact on inflation expectations for certain components including food, healthcare, clothing & footwear, where the team has found a “distinct bimodal distribution”.
Following the academic work by Alberto Cavallo of Harvard Business School (2020) and the UK Office of National Statistics (ONS), respondents were also asked if there were any substantive changes to their consumption basket.
Based on the survey’s results, consumers have indicated that there will be no exchanges in most of the components except food, housing and utilities, and household durables and services, which are expected to see limited increase.
This perhaps indicates that even though their One-year-Ahead inflation expectations are somewhat reducing, their allocation to consumption basket will increase, for these specific components. The overall impact might increase their spending slightly as is reflected in the analysis,” says DBS in the same statement.
In addition, around 11.5% of the Singaporeans polled expect a more than 5.0% reduction in salary in the next 12 months. This is a lower proportion compared to 12.1% in March. The median salary increment expectation changed to an increase by 1.0-5.0%.
As a measure of the trade-off between prioritising economic growth and cost to live, the ratio stood at 3.4 in June, higher than the 3.3 in March.
This means for every person who prioritised life over livelihood, there are more than three who prioritised livelihood over life.
This also indicates the level of divergence among Singaporeans – some feel the economy should be reopened fully to generate some semblance of growth and create jobs; while others feel that protecting lives should be given utmost priority. The latter group is said to be “reducing a little and is stabilising”.
DBS Chief Economist and managing director of group research, Dr. Taimur Baig says: “Globally, inflation has proven to be higher and stickier than considered likely even a few months ago, but that has yet to undermine long-term anchoring of inflation expectation in industrial economies.”
“Singapore has been no exception, where inflation expectations have incorporated recent developments, but survey respondents express no particular alarm over the prospects of price movements in the long run. The MAS, with its spate of four policy tightening measures since last October, has shown its resolve to keep inflation steady by deploying its suite of tools,” he adds.
“A combination of stronger Singapore dollar, tighter domestic liquidity, and macro prudential measures in place would go a long way in keeping inflation expectations anchored, in our view.”
SKBI Director Professor Dave Fernandez says, “With actual inflation printing higher, central bankers and markets are paying close attention to all measures of inflation expectations. Notably, in the US, after raising the Fed Funds target by 75 basis points (bps), Chair Powell specifically cited the University of Michigan inflation expectations survey, saying the June reading was ‘quite eye-catching and we noticed that.’”
He adds: “So far, Singapore’s inflation expectations have risen but remain anchored. The clear risk is that, without vigilant policy actions, current price pressures could bleed into expectations, making it more likely that inflation becomes more persistent.”
SMU Assistant Professor of Finance and founding principal investigator Ghosh said that the current global economic situation was at a “crossroads”.
“An ominous ‘stagflation’ scenario can be detrimental to global growth even if a global recession is averted warned the World Bank in its June 2022 Global Economic Prospects report. Being a small open economy, Singapore is fairly exposed to all the headwinds afflicting the global economy including the supply chain disruptions as well as the Ukraine-Russia conflict which are escalating global inflation as evidenced from [a] four-decade high inflation in the US and have darkened global growth outlook as is evident from the stuttering growth in major economies like China,” he adds.
While the MAS’s pre-emptive tightening of its monetary policy may have “dampened the unhinged increase in inflation expectations”, the “heightened level of uncertainty rising from the continuing conflict in Ukraine is having a debilitating impact on global production of food grains and other commodities, increase in global oil prices and potential slowdown in major economies,” Ghosh continues.
“These might have caused the free response behaviourally adjusted inflation expectations to be significantly higher, particularly due to cognitive biases in surveys. This cognitive dissonance is reduced when we look at those respondents with higher levels of financial literacy having slightly lower inflation expectations.”
