Singaporeans wary over higher inflation

Consumers expect inflation to rise 4.57%.

Singapore households are expecting inflation to rise due to perceived low interest rates and excess liquidity in the foreseeable future, according to the latest findings of the SKBI-MasterCard Singapore Index of Inflation Expectations (SInDEx).

The SInDEx, which was jointly developed by Singapore Management University’s Sim Kee Boon Institute for Financial Economics (SKBI) and MasterCard, is derived from an online survey of around 400 randomly selected individuals from Singapore households.

The online survey helps researchers understand the behaviour and sentiments of decision makers in Singapore households. This is the fifth wave of the quarterly survey conducted under the collaboration and the indices were officially launched in January 2012. SInDEx was co-developed by Dr Aurobindo Ghosh and Professor Jun Yu from SMU SKBI.

In the latest survey conducted in September this year, consumers shared their views on perceived values of economic variables over the next one to five years.

Comparing the two waves of surveys conducted in June and September 2012, consumers expect inflation to inch higher. Their perception of the One-year-Ahead headline inflation (CPI-All Items) has gone up from 4.45% in June to 4.57% in September. At the same time, the forward looking SInDEx1, a composite weighted index of One-year-Ahead inflation expectations, has consequently increased to 4.57% (from 4.4% in June).

The long term Five-year-Ahead overall (or CPI-All Items) Inflation expectations went up to 5.56% in September. The Five-year-Ahead Singapore Core Inflation rate (excluding accommodation and private transportation) is at 5.2% in the September wave, which is higher compared to 4.91% in June. This shows that, besides housing and private transportation, respondents also perceived a rise in commodities prices.

The composite Five-year-Ahead Singapore Index of Inflation Expectations (SInDEx5) in September 2012 has consequently increased to 5.35%, from 5.08% in the survey conducted in June 2012.

Dr. Aurobindo Ghosh, co-creator of SInDEx, and Programme Director of SMU SKBI said, “The slowdown of global economic activities and persistent unemployment in western economies have sent warning signals to policymakers on the urgency to create new jobs, thus resulting in expansionary monetary policies. These events might have created a perception that “smart money” will start flowing to financially and economically sound markets in Asia like Singapore.

“With an impending slowdown of growth in India and China compared to their recent historic averages, Singapore is probably as good a bet as any other investment destination. This expected influx of “smart money” might have led to an increase in the medium and long term inflation expectations particularly through the real estate sector. This perception, coupled with domestic price pressures due to rising private transportation costs might have exacerbated the overall inflation expectations, although the price of oil and some other commodities have significantly eased in recent times.” Dr. Ghosh observed.

Dr. Yuwa Hedrick-Wong, global economic advisor, MasterCard Worldwide said, “The global economic outlook today is affected by an unprecedented level of uncertainty, possibly the worst in over half a century. Accordingly, the increase in inflation expectation in Singapore reflects consumers’ concern over both domestic conditions as well as the global economy. The significant rise in the Five-Year Ahead expectation especially suggests that Singapore consumers are troubled by the persistent uncertainty in the global economic environment.”