Singaporeans' inflation expectations climb for the first time in 2 years as domestic price pressures mount

Pass-through costs are to blame.

The one-year-ahead inflation expectations of Singapore households has inched up to 3.73%, according to the research findings of the latest quarterly survey for Singapore Index of Inflation Expectations (SInDEx) by Singapore Management University (SMU).

This is the first rise both for CPI-All item and the Singapore core inflation rate, excluding accommodation and private transportation expenses, expectations since September 2012, and is mainly due to domestic pass-through price pressures.

In Singapore, pass-through costs like rental and tight labour market conditions have continued to put an upward pressure on prices. 

Lower imported inflation, including lower oil prices, seems not to have substantive downward impact on reducing the perceptions of future inflation expectations.

The SInDEx, which was originally developed by SMU’s Sim Kee Boon Institute for Financial Economics (SKBI) in collaboration with MasterCard International, is derived from an online survey of around 500 randomly selected individuals representing a cross section of Singapore households. 

The online survey helps researchers understand the behaviour and sentiments of decision makers in Singapore households. This quarterly SInDEx survey, started in September 2011, has yielded two indices that were officially launched in January 2012. 

Here’s more from SMU:

In the latest survey conducted in September 2014, consumers shared their views on expectations of inflation-related variables over the medium term (One-year-Ahead) to long term (Five-year-Ahead). 

The results of the September 2014 wave of the SInDEx survey showed that compared to June 2014, the One-year-Ahead headline inflation (or CPI-All Item inflation) has inched up to 3.73% from 3.66% in June 2014, its first rise in nearly two years since September 2012. 

Compared to the historical average of 4.16% and the second quarter average of 3.79%, the current One-year-Ahead headline inflation expectations shows that Singapore households are a little wary of possible price increases on essential items due to pass-through costs despite significant drop in current inflation rates.

Following the overall headline inflation, the One-year-Ahead Singapore core inflation expectations (excluding accommodation and private transportation related costs) also edged up to 3.95% in September 2014 (from 3.85% in June 2014), reflecting an apparent end to the downward trend since September 2012. 

For a subgroup of the population who own their accommodation and use public transport, the One-year-Ahead Singapore core inflation rate was 3.83% in the September 2014 survey compared to 3.81% in June 2014. These respondents in reality face the Singapore core inflation as they don’t have to face changes on accommodation or private transportation costs directly.