Singaporeans expect higher prices amidst trade tensions

They think inflation will rise to 3.43% in a year.

Singaporeans’ one-year-ahead median inflation expectations rose by 50bps from 2.97% in December 2017 to 3.43% in March 2018, due to a faster rate of normalisation of US monetary policy and a heightened threat of a trade war among US and major economies, revealed the Singapore Index of Inflation Expectations (SInDEx) by the Sim Kee Boon Institute for Financial Economics (SKBI) at Singapore Management University (SMU).

"The cyclical global growth that we had envisioned last quarter of 2017 seems to have continued, particularly in the G3 economies with continued stability in job growth with the lowest unemployment in the US since the turn of the century holding steady at 4.1% underpinned by a steady recovery in oil and commodity prices. Despite the positive outlook on global growth, there are several factors that drive this divergence both internationally and domestically," SInDEx said.

For the March 2018 SinDEx survey, the median one-year-ahead inflation expectations of some of the components of CPI-All Item inflation like food, transport, housing & utilities, and healthcare are polled at 3%.

The survey noted that compared to the historical median headline inflation expectations (since September 2011) average of 3.44%, current one-year-ahead median headline inflation is still marginally lower. However, "it is marginally higher than the recent first quarter average of 3.41% for the one year ahead headline inflation expectations," it added.

Excluding accommodation and private road transportation costs, the one-year-ahead median Singapore core inflation expectations grew from 2.91% to 3.3%.

For a subgroup that owns their accommodation and uses public transport, inflation expectations also rose from 2.92% to 3.27%. "This subgroup’s expectations of core inflation closely resemble the Singapore Core Inflation Expectations, as, unlike the general population they are not exposed to private transport or private accommodation expenses. These results indicate that there seems to be a fairly stable but elevated perception of future overall price changes representing the Singapore core inflation rate that excludes housing and private road transportation," SInDEx added.