[Singapore, 22 April 2013] – Singapore consumers are expecting inflation to continue to fall amid global declines and continued uncertainty around the weak global economic outlook, according to the latest findings of the SKBI-MasterCard Singapore Index of Inflation Expectations (SInDEx).

The SInDEx, which was jointly developed by Singapore Management University’s Sim Kee Boon Institute for Financial Economics (SKBI) and MasterCard, is derived from an online survey of around 400 randomly selected individuals from Singapore households.

The online survey helps researchers understand the behaviour and sentiments of decision makers in Singapore households. This is the seventh wave of the quarterly survey conducted under the collaboration since the indices were officially launched in January 2012. SInDEx was developed by Dr. Aurobindo Ghosh and Professor Jun Yu from SMU SKBI, in collaboration with MasterCard.

In the latest survey conducted in March 2013, consumers shared their views on perceived values of economic variables over the next one to five years.

Comparing the two waves of research conducted in December 2012 and March 2013, consumers expect inflation to decline in the next 12 months. Their perception of the One-year-Ahead headline inflation (CPI-All Items) recorded a significant dip from 4.37% in December to 4.12% in March. This is the lowest it has been since its inception in September 2011. At the same time, the forward looking SInDEx1, a composite weighted index of One-year-Ahead inflation expectations decreased to 4.26% (from 4.4% in December).

The long term Five-year-Ahead overall (or CPI-All Items) Inflation expectations is at 5.2%, dropping marginally from 5.21% in December, reaching the lowest level since March 2012. The Five-year-Ahead Singapore Core Inflation rate (excluding accommodation and private transportation) also decreased slightly to 4.82% from 4.84% in the December wave, following a downward trend.

The composite Five-year-Ahead Singapore Index of Inflation Expectations (SInDEx5) in March 2013 fell marginally to 4.96% from 4.97% in the survey conducted in December 2012.

Dr. Aurobindo Ghosh, co-creator of SInDEx, and Programme Director of SMU SKBI said, “The unprecedented and concerted global expansionary monetary policy and open market operations by central banks in the aftermath of the Global Financial Crisis (GFC), and record low interest rates in the G3 Economies (U.S., euro zone and more recently Japan) have not caused unhinged inflation expectations in a small open economy like Singapore, according to the SInDEx Survey. One of the possible reasons for this seems to be that imported inflation has moderated.”

“Furthermore, the survey respondents seemed to feel that local structural factors like increasing wages from a tight labor market and possibly other pass-through costs including higher COE premiums have not significantly increased the overall prices. With One-year-Ahead headline inflation expectations at its lowest level since we started collecting data for SInDEx in the third quarter of 2011, there are strong signs of anchoring of medium term inflation expectations in Singaporean households,” Dr. Ghosh added.

Dr. Yuwa Hedrick-Wong, global economic advisor, MasterCard said, “Inflation expectation remains high in spite of the slight decline in the latest survey findings. This highlights persistent worries over the global economic outlook, especially in light of the continuing euro zone crisis. While Asia continues to be the best performing region in the global economy to date, global economic conditions are still fragile and unstable, which have direct impacts on a small and open economy like Singapore.”

Methodology

Two indices were created, SInDEx1 and SInDEx5, to measure the 1-year inflation expectations and the 5-year inflation expectations. The data for the SKBI-MasterCard Survey was collected online from about 400 consumers. The sampling was done using a quota sample over gender, age and residency status to ensure representativeness of the sample. Employees in some sectors like journalism, marketing were excluded as that might have an effect on their responses to questions on consumption behaviour and expectations.

About Sim Kee Boon Institute for Financial Economics

Established in July 2008, the Sim Kee Boon Institute for Financial Economics (SKBI) at the Singapore Management University promotes the study of Financial Economics and Financial Econometrics in areas of strategic relevance to Singapore's economy and the economies of the region. A significant addition to Singapore's efforts to be a financial hub in Asia, SKBI is a leading institute for academic research with strong industry application and practical dimension in the area of Financial Economics.

The Institute has four major research centres for quantitative financial analysis and offers training programmes for professionals in the financial industry. Its work is conducted in close collaboration with leading scholars in financial economics and financial econometrics from around the world as well as leading international organisations and experts from industry. skbi.smu.edu.sg

About MasterCard

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