Core inflation expectations lowest in 4 years

Singapore

SINGAPORE households' core inflation expectations have dropped to their lowest levels in four years, due to sliding oil prices, weak global growth prospects, and benign domestic price pressures.

Expectations for core inflation in the year ahead slid to 3.31 per cent in September - from 3.5 per cent in June - according to a quarterly report by the Singapore Management University released on Monday.

The softer rate of core inflation - which excludes accommodation and private transport costs - is the lowest level recorded since SMU's Singapore Index of Inflation Expectations (SInDEx) survey started in 2011.

As for overall inflation expectations, the headline number slipped to 3.23 per cent - below the historical inflation expectations average of 3.94 per cent, said SMU.

Singaporeans polled in September were swayed by weak global growth prospects, which drove inflation expectations below their earlier one-year inflation expectation of 3.35 per cent recorded in June.

Said SMU in a press release: "Prolonged slump in global oil prices owing partly to oversupply and sluggish demand, as well as continued weakness in commodity prices, have had deleterious effects on global growth prospects.

"Exacerbating the global factors, which is resulting in benign and almost negligible imported inflation, domestic factors such as continued decline in private transportation cost due to an impending supply boost in Certificates of Entitlement (COEs) and additional supply of accommodation in the medium term might have also contributed in dragging the inflation expectations downwards."

The SInDEx, co-developed by Aurobindo Ghosh, an assistant professor of the Lee Kong Chian School of Business, is derived from an online survey of around 500 randomly selected individuals representing a cross section of Singapore households. Monday's report collates the results of the latest and seventeenth wave of the SInDEx survey, which was was conducted in September.

Said Prof Ghosh of the domestic inflation outlook: "Domestic or pass-through price pressures, such as a tight domestic labour market which has an uplifting impact on wages, have been relatively benign in terms of increasing inflation expectations."

The Department of Statistics will announce the inflation rate for September on Friday. The 17 economists polled by Bloomberg expect headline inflation to remain in negative territory, at -0.6 per cent.

Just last week, the Monetary Authority of Singapore narrowed its 2015 inflation forecasts to the lowest ends of earlier expectations. It now sees core inflation and headline inflation coming in at around 0.5 per cent and -0.5 per cent respectively - at the bottoms of previous forecast ranges of 0.5-1.5 per cent for core inflation, and -0.5-0.5 per cent for headline inflation.

Beyond this year, MAS expects core inflation to "rise gradually" over the course of 2016 towards its historical average of close to 2 per cent.