Singaporeans’ medium- and long-term inflation expectations in June have flattened following uncertainties related to the timing and extent of the country’s recovery from the pandemic.
This is according to the latest Singapore Index of Inflation Expectations (SInDEx) survey announced on July 19 by DBS Group Research and Singapore Management University (SMU).
The quarterly online survey helps researchers understand the behaviour and sentiments of Singaporeans through a survey of around 500 individuals representing a cross-section of Singaporean households.
One-year-ahead headline inflation expectations remained unchanged at 2.7% in June from the last survey in March. It also remains lower than the historical (2012-2020) 2Q average of 3.3%.
Adjusting for potential behavioural biases and re-combining across components, headline inflation expectations edged down to 3% in June 2021 from 3.1% in March 2021.
Inflation expectations for majority of the components like food, housing & utilities, transport, healthcare, education and communication have remained unchanged, while that for recreation & culture, clothing & footwear, and miscellaneous goods and services like personal care and personal effects have come down.
In comparison, inflation expectations for household durables & services have gone up slightly.
Inflation expectations for most components were expected to have a limited positive impact from Covid-19.
In terms of the consumption basket, the June survey suggests some increase in spending on housing and utilities, which may be attributable to work-from-home arrangements during the heightened alert phase.
Excluding accommodation and private road transportation-related costs, the one-year-ahead core inflation expectations rose to 3.2% in June from 2.7% in March. This increase possibly reflected renewed economic activities, as well as the recovery of global inflation alongside an upswing in world commodity prices such as oil.
The one-year-ahead composite index SInDEx1 that puts less weight on more volatile components like accommodation, private road transport, food and energy related expenses polled at 2.9% in June compared to 2.7% in March. This remains below the second quarter average of 3.3% since the survey’s inception in 2012 till 2020.
See also: Inflation expectations of Singaporean households at 5-year lows
In June, around 70% of the survey respondents reported their belief that Covid-19’s impact on inflation would be significant compared to 67% in March. The share of survey respondents who feel that Covid-19 will have long-term impact on inflation increased to around 73%, from about 67% in March 2021.
Both results indicate dampened sentiments following the tighter public health measures under Phase 2 and Phase 3 (Heightened Alert) as well as the emergence of highly transmissible and potentially virulent variants.
In addition, around 12.5% of the Singaporeans polled expect a more than 5% reduction in salary in the next 12 months, compared to 14.1% in March. The median salary increment expectations stayed between -1% and 1%.
DBS chief economist and managing director of group research, Dr. Taimur Baig comments, “As vaccination progresses and gradual economic re-opening comes into focus, consumer confidence is likely to improve, which may also be associated with a rise in inflation expectations. But having recovered earlier this year, price expectations have stabilised in Singapore. This perhaps reflects lingering uncertainty about the timing and extent of reopening this year, casting a shadow on the outlook for further rise in demand, wages, and prices.”
SMU Assistant Professor of Finance and founding Principal Investigator of the DBS-SKBI SInDEx Project, Aurobindo Ghosh observes, “While the SInDEx survey suggests overall inflation expectations seem to flatten with prospects of Federal Reserve tapering of accommodative policy in 2023, but possible upswing in global commodity market or even a nascent commodity super-cycle seems to be pushing up the energy and commodity components and consequently medium term Singapore Core Inflation Expectations.”
For the longer horizon, the five-year-ahead headline inflation expectations in the June survey remained unchanged at 3.4%. This remains lower than the 2Q average of 4.1% since the survey’s inception in 2012 till 2020.
The five-year-ahead core inflation expectations (excluding accommodation and private road transportation related costs) also remained unchanged at 3.3% in June.
Overall, the composite five-year-ahead SInDEx5 also increased to 3.4% in June from 3.3% in March. In comparison, the second quarter average value of the composite five-year-ahead SInDEx5 was 4% since the survey’s inception in 2012 till 2019.
Photo: Bloomberg
