Singaporeans' inflation expectations hit 2.9% in December 2018

Expectations continued its downward trend from September.

Singaporeans’ one-year-ahead headline inflation expectations stood at 2.9% in December 2018 on the back of uncertainties in global growth prospects and a possible resolution to US-China trade tensions, according to the latest findings in the DBS-Singapore Management University (SMU) Singapore Index of Inflation Expectations (SInDEx) survey.

The DBS-SMU SInDEx survey was conducted in December 2018 and looked at consumer expectations on inflation-related and asset management related variables over the medium term (one-year-ahead) and long term (five-year-ahead).

The quarterly SInDEx found that one-year-ahead CPIEx Inflation Expectations (CPI-All Item inflation) maintained a downward trend at 2.9% and remained unchanged from September 2018. Expectations for the major components of the CPI basket such as food, housing and utilities, transportation and healthcare also primarily remained unchanged from Q3.

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Food, housing and utilities inflation expectations remained unchanged at 2%, whilst transportation inflation inched down 0.1% to 2%. Healthcare inflation expectations also remained unchanged in the December 2018 survey. Additionally, education related inflation expectations polled at 3%, whilst recreation costs inflation stood at 2%, the parties revealed.

“The overall DBS-SMU CPIEx Inflation Expectations, after adjusting for potential behaviour biases, was at 2% in December 2018,” the parties said in its report. “This also suggests that the DBS-SMU CPIEx inflation expectations seem to be anchored fairly well despite various short-term uncertainties of the global economy including Sino-American trade tensions, US Federal Reserve’s continued policy normalisation and a possible slowdown in the global economy.”

Meanwhile, the SMU research team also polled respondents on their one-year-ahead expectations on inflation after excluding accommodation and public road transportation expectations by providing them with information of current and past core inflation rates. After these adjustments, one-year-ahead expectations still polled at 2%.

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For the longer term, five-year-ahead DBS-SMU CPIEx inflation expectations in December 2018 dropped from 3.8% to 3.6%, continuing its downward trend since December 2016, the parties added. It is also significantly less compared to the historical average of 4% since the survey started in September 2011.

“In Singapore, further tightening of the monetary policy in October 2018 seems to have lowered overall inflation expectations both in medium and long term, and bodes well for the future effectiveness of the monetary policy regime,” SMU’s assistant professor of finance and principal investigator for the DBS-SMU CPIEx project Aurobindo Ghosh said. “Our particular concern is the impact of policy tightening in the US on emerging markets with debt denominated in US dollars. Inflation expectations play a significant role that impact both monetary policy and individual decision makers.”