Prof Arnoud De Meyer, SMU President (left) and Mr Vicky Bindra, President of Asia/Pacific, Middle East & Africa (APMEA) for MasterCard Worldwide at the first anniversary celebration of SKBI-MasterCard Singapore Index of Inflation Expectations.

SMU and MasterCard Worldwide celebrated the first anniversary of the launch of SKBI-MasterCard Singapore Index of Inflation Expectations (SInDEx in short).

Launched in January 2012, this index was jointly developed by Dr Aurobindo Ghosh, Professor Jun Yu from SMU Sim Kee Boon Institute for Financial Economics, and MasterCard. They have also produced regular reports and the recent one is titled “Singapore Inflation Expectation: Expecting the Unexpected”

In this latest report, released on 24 January 2013, Dr Aurobindo Ghosh, co-creator of SInDEx and Programme Director of SMU SKBI said he was glad to find out that consumers were actually very well-informed  in developing their inflation expectations.

Dr Ghosh said, “What we found out is that Singaporeans are very well-informed and very well-grounded on what they expect inflation to be in the future. It turns out that they are more accurate than many professional forecasters about the expectation of future inflation.”

When the SInDEx was introduced a year ago, SInDEx1, which is calculated based on an online survey of 400 Singapore households, showed that Singapore Households expected inflation in year 2012 (one year ahead Headline Inflation) to be around 4.68%.

According to the latest official figures released in January this year, inflation averaged 4.6 per cent in 2012.

Dr Ghosh said, “It turns out that the one-year-ahead predicted Headline inflation rate of 4.68% is closer to the realised CPI-All items inflation rate of 4.6%, when compared to the median forecast of the Survey of Professional Forecasters who predicted 2.8%.”

Going forward, Singapore consumers expect inflation to be lower as the global economy weakens, as shown by the latest findings by SMU SKBI and MasterCard.

Dr. Ghosh commented, “Even though the United States possibly avoided falling off the fiscal cliff, many Eurozone economies are tittering on the brink of continued slowdown in productive activities and persistently high unemployment. This has created a downward pressure on global demand which in turn has manifested in low inflation rates in many Western and regional economies. Furthermore, low inflation has prompted policymakers to continue to adopt an expansionary monetary policy and more stimulus spending to kick start growth and employment generation. The concern of a spike in inflation expectations which post the third sequel to Quantitative Easing (QE3) in the U.S. seems to have subsided somewhat, with the medium term inflation expectations in Singapore projected to come down in reaction to slowing trends in global demand.”

The working paper can be viewed here.