Singapore households' inflation expectations at their lowest level in three years: SMU

SINGAPORE - Singapore households' expectations of inflation have dropped to their lowest levels in three years because of plunging oil prices and uncertainty about global economic growth, according to the findings of a Singapore Management University (SMU) survey, released on Monday.

The ane-year-ahead inflation expectations of Singapore households dropped to 3.53 per cent from 3.73 per cent in September 2014, according to the latest quarterly survey for SMU'S Singapore Index of Inflation Expectations (SInDEx).

Owing mainly to precipitous drop in global oil prices, and other signs of weakness in the nascent global recovery, coupled with an expectation of increase in benchmark interest rates, Singaporeans' inflation expectations both in the medium-term (one-year-ahead) and long-term (five-year-ahead) dropped in all categories.

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Lower imported inflation, driven by oil prices near six-year low, seems to have substantive downward impact on reducing the perceptions of future inflation expectations, SMU said.

Despite the presence of significant domestic pass-through costs in a tight labour market and expected stimulus spending in the euro zone and Japan, the weakness in global demand seems to have brought both the overall inflation expectations and the Singapore core inflation expectations to their lowest levels since the SInDEx survey started in September 2011, SMU said.

Singapore experienced deflation for the first time in five years when the consumer price index (CPI) for November fell to -0.3 per cent year-on-year. Economists have forecast that Singapore could see deflation again in December in view of plunging oil prices, and that if deflation persists, it could hurt economic outlook. The December CPI will be out on Friday

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 quarterly online survey helps researchers understand the behaviour and sentiments of decision makers in Singapore households. SMU Assistant Professor Aurobindo Ghosh and Professor Jun Yu are the co-developers of the SInDEx survey.

Said Assistant Professor Aurobindo Ghosh: "There is always an interplay between experience from domestic price pressures, imported inflation dynamics, and communications from policymakers in the formation of medium term and long term inflation expectations for households. Recent moderation in accommodation prices and private car prices in Singapore, exacerbated by the slump in oil prices which dampened imported inflation, seem to have brought down the current inflation rates and their expectations to very low levels."