Figure 1: One-year-Ahead-inflation expectations: The chart shows the quarterly DBS-SKBI CPIEx (CPI-All Item) and DBS-SKBI CPIEx Core (Excluding accommodation and private road transportation components) One-Year-Ahead Inflation Expectations polled in the quarterly online Singapore Index of Inflation Expectations (SInDex) Survey conducted September 7-17, 2021.
DBS Chief Economist and Managing Director of Group Research, Dr. Taimur Baig commented, “Incorporating local and global developments in their information set, Singaporeans expect around 3% inflation in the coming year. This is consistent with the cycle of economic normalisation and some supply side disruptions visible globally. The survey results provide important insights into the areas of consumer concern, which should be very valuable to market participants, businesses, and policy makers.”
SMU Assistant Professor of Finance and founding Principal Investigator of the DBS-SKBI SInDEx Project, Aurobindo Ghosh highlighted, “Responding to global cues like the energy shortages in China, pandemic induced global supply chain disruption including chip shortages and cyclical increase in energy and commodity prices, One-Year-Ahead inflation expectations among Singaporeans increased both in an aggregate sense and for major components like food, transportation, housing & utilities, and healthcare, among others. With employees continuing to work from home, consumption baskets are changing somewhat. Our survey suggests that respondents are spending more on housing and utilities while reducing their consumption on transportation.”
“However, with possibly cognitive overload with information from multiple sources, consumer survey-based inflation expectations are often biased. Even after adjusting for some behavioural biases, we find a significant jump in the perception of One-Year-Ahead Inflation expectations, the highest since we started collecting the data of these components in 2019. While interpreting most survey-based measures of inflation expectations, policymakers and academics conclude that the change of direction of inflation expectations is more informative than the levels themselves. In sum, we can conclude, that there is indeed a broad-based increase in One-Year-Ahead inflation expectations possibly as reactions to global cues and medium-term domestic price pressures from pandemic restrictions,” Prof Ghosh noted.
For the longer horizon, the Five-year-Ahead CPIEx inflation expectations jumped to 3.9% in the September 2021 survey compared to 3.4% from June 2021. The current polled number is still lower than the third quarter average of 4.1% since the survey’s inception in 2011 till 2020.
The Five-year-Ahead CPIEx core inflation expectations (excluding accommodation and private road transportation related costs) also increased to 3.6% in September 2021 compared to 3.3% in June 2021. Overall, the composite Five-year-Ahead SInDEx5 also increased to 3.7% in September 2021 from 3.4% in June 2021. In comparison, the third quarter average value of the composite Five-year-Ahead SInDEx5 was 4% since the survey’s inception in 2011 till 2020.
“The International Monetary Fund, in their semi-annual World Economic Outlook released this month, reflected on the challenges to recovery. These include ‘…subdued employment growth, rising inflation, food insecurity…’ posed by a persistent pandemic despite extolling the immediate policy reactions which might have staved off another financial crisis. We find long term inflation expectations, both the raw numbers and those adjusted for behavioural biases, seem to be stable and reacting to global cues in September 2021. This is an indication of some degree of anchoring of inflation expectations. Having said that, we also observe some divergence of views of the way forward among Singaporeans, as reflected in the life and livelihood debate in September 2021 where two respondents chose to prioritise livelihood over life for every respondent who chose life over livelihood, down from three in the June 2021 survey, ” Professor Ghosh commented.
Figure 2: Five-year-Ahead-Inflation Expectations in Singapore: The chart shows the quarterly DBS-SKBI CPIEx (CPI-All Item), DBS-SKBI CPIEx Core (excluding accommodation and private road transportation components), SInDEx (Composite index with lower weights on volatile components like food, energy, accommodation and private road transportation) One-Year and Five-Year-Ahead Inflation Expectations polled online quarterly for the Singapore Index of Inflation Expectations (SInDex) Survey conducted September 7-17, 2021. The chart shows a preliminary estimate of Behaviourally Adjusted One-year-Ahead overall DBS-SKBI Adjusted CPIEx. As comparison benchmarks, the chart provides the most recent quarterly CPI-All Item Inflation, MAS Survey of Professional Forecasters median One-year-Ahead CPI-All Item inflation forecasts and the yield spread of 10-year and 1-year Singapore Savings Bonds (SSB).
DBS-SKBI SInDEx survey yields CPIEx Inflation Expectations (estimating headline inflation expectations) and related indices are products of the online survey of around 500 randomly selected individuals representing a cross section of Singaporean households. The survey is led by Principal Investigator Dr. Aurobindo Ghosh, Assistant Professor of Finance (Education) at Lee Kong Chian School of Business, SMU. The online survey, powered by Agility Research and Strategy, helps researchers understand the behaviour and sentiments of decision makers in Singaporean households. DBS Group Research is a co-sponsor and research partner with the Sim Kee Boon Institute for Financial Economics (SKBI) at SMU.
The quarterly DBS-SKBI SInDEx survey has also yielded two composite indices, SInDEx1 and SInDEx5. SInDEx1 and SInDEx5 measure the One-year inflation expectations and the Five-year inflation expectations, respectively. 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 and marketing were excluded as that might have an effect on their responses to questions on consumption behaviour and expectations.
The DBS-SKBI SInDEx survey was augmented in June 2018, based on a joint research study conducted by SMU researchers in collaboration with MAS and the Behavioral Insights Team, where respondents were polled on their perceptions of components of the Consumers Price Index (CPI) and adjusted for possible behavioural biases prevalent in online surveys.
Based on the recommendations of the joint study, since March 2019 the research team has polled the One-year-Ahead inflation expectations of all of the major components of CPI-All Items inflation. The behaviourally adjusted component-wise inflation expectations have increased in most categories like Food, Housing and Utilities, Transportation, Healthcare, recreation & culture, Clothing & Footwear and Miscellaneous Goods & Services; however it stayed unchanged for Education, Household durables & Services and Communications. In free response answers, compared to June 2021 survey, respondents in the September 2021 survey polled One-year Ahead and Five-year Ahead headline and core inflation expectations to increase.
We introduced a new ratio in the June 2020 survey, on the life versus livelihood debate as an aftermath of the Covid-19 pandemic - the ratio of respondents who feels livelihood should be prioritized over life vis-à-vis those who feel the other way . This ratio declined from 3 in June 2021, to 2 in September 2021, which means for every respondent who prioritised life over livelihood, there were 2 who prioritised livelihood over life, signaling a level of pandemic restriction fatigue and a divergence of opinion about the best way forward.