SINGAPORE (THE BUSINESS TIMES) – Singaporean households surveyed last month see overall or headline inflation rising to 2.7 per cent in the year ahead from 2.2 per cent in a December poll.
The latest quarterly survey for the Singapore Index of Inflation Expectations (SInDEx), released by DBS and the Singapore Management University (SMU), polled 500 individuals representong a cross-section of Singaporean households.
March’s reading is still lower than the historical first-quarter average of 3.3 per cent from 2012 to 2020. However, it shows an upward trend from December 2020’s 2.2 per cent and September 2020’s 1.9 per cent, which is the lowest polled since the survey’s inception in 2011.
Excluding accommodation and private road transportation related costs, the one-year-ahead core inflation expectations edged up to 2.7 per cent.
In a joint statement, DBS and SMU said some semblance of normalisation and global cues of recovery with the massive roll-out of various vaccines might have buoyed inflation expectations.
Singapore’s central bank kept monetary policy steady last week on expectations core inflation – which excludes accommodation and private road transport costs – to remain low this year.
It maintained its prediction for core inflation this year at 0 per cent to 1 per cent this year, but raised its forecast for headline inflation to 0.5 to 1.5 per cent, up from minus 0.5 per cent to 0.5 per cent previously, citing higher-than-expected increases in private transport and accommodation costs in the first two months of 2021.
“A cyclical rise in commodity prices including oil price, the pace of recovery, along with record low interest rates globally have triggered a debate on increased inflation risk among practitioners, academics and policymakers,” aaid Aurobindo Ghosh, assistant professor of finance (education) at SMU’s Lee Kong Chian School of Business and founding principal investigator of the SInDEx project.
He added: “In the survey conducted in March 2021, we find an uptick in inflation expectations across the board even though the signal is less clear among the components of inflation as consumption basket patterns seem to have reverted to pre-pandemic levels. Consumer sentiments seem to have been buoyed by the record-breaking financial markets rather than the more uncertain and divergent growth in jobs and trade.”
After adjusting for behavioural biases, SInDEx inflation expectations edged down to 3.1 per cent in March 2021 from 3.2 per cent in December 2020.
Following the trend in December, the SInDEx survey found that consumption patterns are continuing at pre-Covid norms. This comes after the moderate decline in spending on clothing and footwear, transportation, and recreational and cultural activities in September.
The poll also noted that inflation expectations for the majority of the components like food, transport, healthcare, education, recreation, apparel, household durables and communication have remained unchanged. That for housing and utilities have come down marginally, while miscellaneous goods and services like personal care and personal effects have gone up slightly.
A lower proportion – around 13.4 per cent – of Singaporeans polled in March expect a more than 5 per cent reduction in salary in the next 12 months, compared with 18.1 per cent in December. The median salary increment expectations stayed between -1 per cent and 1 per cent.
The SInDEx survey also found that 67 per cent of survey respondents feel that Covid-19 will have long-term impact on inflation, a decline from nearly 72 per cent in December 2020. The researchers believe this indicates that more respondents feel the end of the pandemic is drawing near.
“We expect to see strong growth out-turns worldwide in the second half of the year as pandemic management turns a corner, which should also be marked by further but modest increases in inflation expectations,” said Taimur Baig, DBS chief economist and managing director of group research.
Five-year-ahead headline inflation expectations in the March survey edged up to 3.4 per cent in March from 3.2 per cent in December last year. However, the number is still “significantly lower” than the first quarter average of 4.2 per cent from 2012 to 2020.
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