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Singaporeans expect inflation to inch up to 3.2% in coming year: DBS-SMU poll

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Singaporeans believe overall or headline inflation will rise slightly to 3.2 per cent over the next 12 months.

SINGAPOREANS believe overall or headline inflation will rise slightly to 3.2 per cent over the next 12 months.

This is up from the 2.9 per cent predicted rate polled in the previous quarter, under the Singapore Index of Inflation Expectations by the Singapore Management University (SMU) and DBS Group Research.

Meanwhile, respondents expect core inflation – price hikes excluding housing and private road transport – to come in at 3.3 per cent for the year ahead, up from their 3.1 per cent forecast in the June poll.

The latest poll was conducted in September and led by SMU assistant professor of finance (education) Aurobindo Ghosh. The quarterly online survey interviews around 500 individuals representing a cross section of Singaporean households.

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DBS Group Research is a co-sponsor and research partner together with the Sim Kee Boon Institute for Financial Economics (SKBI) at SMU.

The September poll showed that inflation expectations across all categories have either stayed the same or inched up quarter on quarter. The component indices that saw an increase in predicted inflation rates were transport, healthcare, education, recreation and communications.

The survey findings were released on Monday, a week after the Monetary Authority of Singapore (MAS) announced it would reduce slightly the pace of appreciation for the Singapore dollar in its first easing in three years.

MAS had said that a modest pick-up in gross domestic product (GDP) growth in 2020 will likely keep inflationary pressures muted. The central bank narrowed its projection for 2019’s headline inflation to 0.5 per cent, and expects headline inflation to average 0.5 to 1.5 per cent in 2020. MAS also predicts core inflation will come in at the lower end of the 1-2 per cent forecast range for 2019, and average 0.5-1.5 per cent in 2020.

The marginal uptick in Singaporeans’ inflation expectations in September is thus “a tad surprising”, against the backdrop of monetary easing, economic and political uncertainty, and dimmed growth expectations, SMU's Prof Ghosh said on Monday.

There is a natural tendency for survey-based inflation expectations measures to often be biased upwards despite adjustments, he added. This has been widely observed in survey-based methods in the University of Michigan Surveys of Consumers in the US, and more recently in New Zealand and Italy.

“It is therefore premature to read anything major from the latest findings,” Prof Ghosh noted.

Meanwhile, DBS chief economist and managing director of group research Taimur Baig said on Monday that inflation remains low worldwide, with Singapore at the centre of that narrative.

“While such a trend is likely to persist, signs of a short-term bottom in inflation, both actual and expected, have emerged. Food and energy prices are low, but not falling any further,” Mr Baig added.

The results of the DBS-SMU survey are consistent with the around 3 per cent medium-term inflation expectations in Singapore, according to Mr Baig.

For the longer horizon, over the next five years, Singaporeans believe overall or headline inflation will rise to 4.1 per cent, up from 3.9 per cent in June.

Expectations of core inflation in the five years ahead stayed largely stable at 3.9 per cent, compared to 3.8 per cent in the June poll.