Higher interest rates and subdued global outlook dampen inflation expectations

SINGAPORE, 17 October 2023 (Tuesday) - These are the research findings of the 49th round of the DBS-SKBI Singapore Index of Inflation Expectations (SInDEx) Survey at the Sim Kee Boon Institute for Financial Economics (SKBI), Singapore Management University (SMU).

  • One-year-Ahead headline inflation expectations pared to 4.5% in September 2023, from 4.9% in June 2023. Consumer’s inflation expectations seem to have peaked and are starting their way down. Although the price levels remain high in some advanced economies, the co-ordinated policy responses for major advanced economies to tackle global inflation and the cost-of-living crisis, aided by dampening outlook of growth in large emerging markets like China, seem to be paying off. Nonetheless, the third quarter One-year-Ahead inflation expectations continue to be higher than the average One-year-Ahead headline inflation expectations of 3.3% since the inception of this index in the third quarter of 2011.
  • As a comparison benchmark, data from the Monetary Authority of Singapore Survey of Professional Forecasters (MAS SPF) released in September 2023 showed that the median forecasts of the Consumer Price Index (CPI)-All Items inflation for 2023 was 4.7% (for 2024, 3.1%) and MAS Core Inflation was 4.1% (for 2024, 2.8%). The latest CPI data release from the Department of Statistics showed that CPI-All Items rose by 5.2% between January and August 2023, compared to the same period in 2022, with the latest August 2023 monthly inflation print coming in at 4.0 % year on year. On 13 October 2023, MAS maintained the rate of appreciation of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) policy band, following five consecutive tightening moves between October 2021 and October 2022. The current appreciating path of the S$NEER policy band will continue to reduce imported inflation and help curb domestic cost pressures, thereby ensuring medium-term price stability. The next monetary policy statement will be announced in January 2024.
  • The overall Consumer Price Index (CPI) Inflation Expectations (CPIEx), after adjusting for potential component-wise behavioural biases and re-combining across components, declined to 5.0% in September 2023 from 5.8% in June 2023. One-year-Ahead inflation expectations of major components of CPI like Food (from 7% to 5%), Transportation (from 6% to 5%), Housing and Utilities (from 6% to 5%) declined while all other components - Healthcare, Education, Recreation & Culture, Clothes and Footwear, Household Durables & Services, Communications and Miscellaneous items including Personal Care - remained steady at 5% between the June 2023 and September 2023 surveys. Higher demand related to Travel, Food & Beverage and Accommodation might have been met with commensurate or higher supply which led to flattening of inflation expectations across the board.
  • We also polled free response overall inflation expectations after accommodating for potential behavioural biases, and these remained unchanged at 5% between the surveys of September 2023 and June 2023. These free response polls help us to gauge perceptions of anchoring of inflation expectations and consumer sentiments in an aggregated sense.
  • In the September 2023 survey, continuing from June 2022 survey, we took a more forward-looking approach to analyse the impact of global economic developments on Singapore’s economic growth and inflation.
    • Overall, given the geo-political unrest and uncertainty, financial sector volatility, continuation of policy tightening – albeit at more measured pace – of monetary policies by major economies, a tight domestic job market and general cost-of-living pressures Singaporean consumers expect Singapore’s economic growth to dampen slightly over the next 12 months.
    • Singaporean consumers opined that over the next 12 months their overall expenses are expected to increase slightly.
    • In September 2023 survey, Singaporean consumers polled had divergent views on how they feel the overall inflation scenario would unfold in the next 12 months. Around 49.5% (compared to 51% in June 2023) of those surveyed expect inflation to decline while 44% (compared to 43% in June 2023) felt that it will increase.
    • The main reason cited by those expecting inflation to decline is higher interest rates (41%). Slowdown in global growth accounts for 36% and is given as the second most common reason cited. A distant third, 16.5% felt resolution of pandemic-induced supply chain disruptions are also expected to relieve price pressures. Among respondents expecting inflation to increase over the next 12 months, the most common reasons cited were central banks in major economies raising interest rates (31%), followed by geopolitical uncertainties due to the Ukraine-Russia conflict (26%), high demand due to easing of Covid-19 restrictions (21%) while supply chain disruptions only account for 14% of those who thought price levels will increase.
    • In the September 2023 survey, respondents opined that current economic conditions have a limited negative impact on One-year-Ahead and Five-year-Ahead overall inflation expectations, although there is significant variation or cognitive dissonance among the respondents. There is a slight negative impact as expectations of slightly increased inflation expectations were polled across components like Food, Transportation, Housing & Utilities, Healthcare but there was no such discernible impact on Education, Recreation & Culture, Communications, Clothes and Footwear, Household durables and services, and miscellaneous items including Personal effects.
  • Alberto Cavallo of Harvard Business School (Cavallo, 2020) and a report by the European Central Bank (Kouvavas et al., 2020) highlighted potential biases in CPI calculations with fixed baskets as respondents made substantive changes to their consumption baskets owing mainly to the pandemic. In the September 2023 survey, respondents opined that they have limited increases in expenses for Food, Transportation, Housing and utilities, Healthcare, Household durables and services and Miscellaneous Personal Effects but no discernible changes in the other CPI components including Education, Recreation and Culture, Communication, Clothes and Footwear. These results indicate that respondents expect the consumptions baskets to change with higher spending on certain components over the next 12 months rather than others, possibly because of more permanent consumption changes in post-pandemic relative consumption and price patterns across the board.
  • Excluding inflation expectations in accommodation and private transportation, the One-year-Ahead CPIEx core inflation expectations for this SInDEx survey dropped from 4.8% in June 2023 survey to 4.6% in the September 2023. This is consistent with the peaking of inflation expectations and an impending decline in inflation expectations that we predicted in June 2023.
  • For a subgroup of the population who owns their accommodation and uses public transport, the One-year-Ahead CPIEx core inflation expectations declined from 4.9% in June 2023 to 4.6% in September 2023, consistent with the overall decline in inflation expectations. This sub-sample measurement is potentially more representative than the full sample measurement, due to high home ownership and public transport ridership in Singapore.
  • Unlike the fixed response which might be susceptible to various behavioural biases, core CPIEx Inflation Expectations (excluding accommodation and private road transportation expenses), after adjusting for potential component-wise behavioural biases and re-combining across components, declined to 5.0% in September 2023 from 5.8% in June 2023 survey. The free response core CPIEx Inflation Expectations, however, stayed unchanged at 5% in September 2023 compared to the June 2023 survey, consistent with the decline in inflation expectations.
  • The One-year-Ahead composite index SInDEx1 that puts less weight on more volatile components like Accommodation, Private Road Transport, Food and Energy-related expenses polled at 4.8% in June 2023 and this pared down to 4.5% in September 2023. It continues to be higher than the second quarter average of 3.3% since the survey’s inception in 2011 till 2022.
  • In addition, in September 2023, around 10.5% Singaporeans polled expect a more than 5.0% reduction in salary in the next 12 months, compared to 11.2% of respondents in June 2023, a slight improvement in the outlook. The median salary increment expectation of a 1.0%-5.0% increase remained unchanged compared to June 2023 survey.


DBS Chief Economist and Managing Director of Group Research, Dr Taimur Baig commented, “Inflation expectations have eased somewhat, but both the level and change of prices remain uncomfortably high in Singapore. We expect to see further relief on inflation from rent and perhaps some goods in the coming months, but are wary about fuel, utilities, and the strong US dollar. Under these circumstances, despite a subdued demand picture, we see central bank policy leaning on the side of combating inflation well into 2024.”

Aurobindo Ghosh, SMU Assistant Professor of Finance and Founding Principal Investigator of the Quarterly DBS-SKBI SInDEx Project, observed, “In their most recent World Economic Outlook released in October 2023, the International Monetary Fund (IMF) highlighted the slow and uneven rate of recovery of the global economy with regional divergences. However, the IMF also signaled that the tightening of monetary policy in major economies is having an impact on declining global inflation though the margin for error for policymakers is pretty narrow. As we highlighted in the June 2023 release, Singapore inflation expectations seem to have peaked around June 2023 and are hopefully on a steadier declining path even though price levels are relatively high, following a period of high inflation. Domestically a variety of pass-through costs like transportation, rental and higher wages due to a tight labor market, along with an impending GST increase besides the slowdown in the growth of major trading partners like China, might have dampened Singapore demand. The inflation expectations of Singaporean consumers are reflecting some of these domestic and geopolitical realities indicating some initial signs of anchoring of medium-term inflation expectations.”

“Recent academic literature has highlighted certain behavioural biases creep into responses of those who are exposed to more volatile grocery and gasoline prices when asked about subjective inflation expectations (Weber et al., 2022). However, it has been established that survey-based inflation expectations of professionals, households and consumers are instrumental in forecasting future inflation (Ang et al., 2007). He observed that, since its inception 12 years ago, the DBS-SKBI SInDEx quarterly survey, has addressed some of the behavioural biases through multiple methods of finding inflation expectations of respondents while providing them with relevant information to make a more informed judgement (Clark et al., 2018). In recent and ongoing research studies on SInDEx, we showed that inflation expectations between policymakers, professional forecasters and the consumer respondents do indeed impact one another, suggesting there is evidence of anchoring inflation expectations,” said Assistant Professor Ghosh.

For the longer horizon, the Five-year-Ahead CPIEx inflation expectations declined from 5.3% in June 2023 to 4.9% in September 2023 survey. The current polled number continues to be higher than the first quarter average of 4.2% polled since the survey’s inception in September 2011 up till 2022.

The Five-year-Ahead CPIEx core inflation expectations (excluding accommodation and private road transportation related costs) also declined from 5.2% in June 2023 to 4.8% in September 2023. Overall, the composite Five-year-Ahead SInDEx5 also reduced slightly from 5.3% in June 2023 to 4.9% in September 2023. In comparison, the first quarter average value of the composite Five-year-Ahead SInDEx5 is 4.0%, since the survey’s inception in September 2011 up till 2022.

After adjusting for potential behavioural biases, the free response Five-Year-Ahead Headline Inflation Expectations declined from 7% in June 2023 to 5% in September 2023, while the free response Core Five-Year-Ahead Inflation Expectations also declined from 7% in June 2023 to 5% in September 2023. This might be reflecting some dampening of global growth prospects over apprehensions of geopolitical headwinds.

“The IMF in their October 2023 World Economic Outlook, has stressed the complementary role of monetary policy frameworks, including communication strategies, in helping achieve disinflation at a lower cost to output through managing agents’ inflation expectations.   Our current data for both medium and long term inflation expectations, seems to show signs of the effectiveness of the monetary policy leading to anchor inflation expectations,” Assistant Professor Ghosh concluded.


DBS-SKBI SInDEx survey yields CPIEx Inflation Expectations (estimating headline inflation expectations) and related indices are products of the online quarterly 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 behavior 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 behavior 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. For September 2023 survey, DBS-SKBI CPIEx headline inflation expectations indices declined compared to June 2023. The core inflation expectations also declined similarly. Further, the behaviourally adjusted component-wise and recombined inflation expectations, and the overall behaviourally adjusted indices declined almost across the board. In free response answers, compared to June 2023 survey, responses  in the September 2023 survey polled for One-year-Ahead Headline and Core Inflation Expectations remained unchanged as a positive sign of anchoring. Overall, the results indicate a slowdown in the trend of medium and long-term inflation expectations.

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 slightly from 3.6 in June 2023 to 3.3 in September 2023. For every respondent who prioritised life over livelihood, there were about 3 who prioritised livelihood over life, signalling life returning to normal with an endemic Covid-19 in Singapore.

For more DBS Asian Insights, please visit www.dbs.com.sg/treasures/aics/home.page or https://www.dbs.com/insightsdirect/.

For more info about SKBI, please visit https://skbi.smu.edu.sg/ and https://www.facebook.com/SKBI.SMU/.


Ang, A., G. Bekaert, and M. Wei., 2007, “Do Macro Variables, Asset Markets, or Surveys Forecast Inflation Better?” Journal of Monetary Economics, 54:4, pp. 1163–212.

Cavallo, A., 2020, "Inflation with COVID Consumption Baskets." NBER Working Paper Series, No. 27352, June 2020 (Harvard Business School Working Paper, No. 20-124, May 2020). (https://www.hbs.edu/faculty/Pages/item.aspx?num=58253, accessed on July 14, 2020)

Clark, A., A. Ghosh and S. Hanes, 2018, “Inflation Expectations In Singapore: "A Behavioural Approach,” Macroeconomic Review, Vol 17:1, pp. 89-98.

Kouvavas, O., R. Trezzi, M. Eiglsperger, B. Goldhammer and E. Goncalves, 2020, “Consumption patterns and inflation measurement issues during the COVID-19 pandemic,” ECB Economic Bulletin, Issue 7/2020. (https://www.ecb.europa.eu/pub/economic-bulletin/html/eb202007.en.html#toc6, accessed on July 14, 2020)

Weber, M., F. D’Acunto, Y. Gorodnichenko and O. Coibion, 2022, “The Subjective Inflation Expectations of Households and Firms: Measurement, Determinants, and Implications,” Journal of Economic Perspectives, 36:3, pp. 157–184.


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