Singaporeans expect headline inflation to inch up to 3.35% in a year's time

Shoppers browse the shelves in a supermarket in Singapore, May 24, 2010.
Shoppers browse the shelves in a supermarket in Singapore, May 24, 2010. PHOTO: BLOOMBERG

SINGAPORE - Despite weaker oil prices and China's economic slowdown, Singaporeans expectations of future inflation have gone up, a quarterly survey by the Singapore Management University (SMU) showed.

The results of its June survey showed that the one-year-ahead expected headline inflation (or CPI-All Item inflation) climbed to 3.35 per cent from the record low of 3.05 per cent expected in March.

The study said that as a comparison benchmark, the median one-year-ahead headline inflation rate - considered by many to be more representative and minimally affected by outliers - rose from 2.87 per cent in March, to 3.14 per cent in the latest June survey.

Said SMU: "Compared to the historical headline inflation expectations average of 3.99 per cent and the historical first quarter average of 3.5 per cent, the current one-year-ahead headline inflation expectations shows that Singapore households are probably anxious about the growth prospects of the global economy and expect gradual and more deliberate increase in interest rates."

SMU released the June findings of its latest Index of Inflation Expectations (SInDEx) on Monday.

It also showed that Singaporeans felt inflation would be higher five years down the road than what they were expecting in March.

SMU said the rise in one-year and five-year-ahead indicators came "despite several factors pointing towards a further downward correction of expected inflation rate like the persistent weakness in global oil prices, slower than expected growth in China, downward pressure on exchange rates due to the recent Greek crisis, and the expected normalisation of monetary policy in the US through a hike in interest rates later this year".

"Higher wage pressures due to a tightening domestic labour market, and other pass-through costs like transportation with less than expected decline in fuel prices, might have more than offset the declining accommodation (i.e. rental) costs, subsidies for foreign domestic workers levy and reduced education costs through waiver of some examination fees," said SMU.

It added that globally there has been an increasing call from International Monetary Fund (IMF) for a delay in the rate hike by the US Federal Reserve Board expected later this year given the declining growth conditions and capital markets in China, exacerbated by the unfolding drama of the Greece crisis prior to the recent bailout deal. These might have dampened the prospect of an immediate or accelerated hike in the interest rates from a decade of record low rates, it said.

The SInDEx was originally developed by SMU's Sim Kee Boon Institute for Financial Economics (SKBI), and an online survey was done - of about 500 randomly selected individuals representing a cross section of Singapore households.

rachaelb@sph.com.sg