Consumers expect inflation to inch higher in Singapore

Consumers expect inflation to inch higher in Singapore

SINGAPORE - Singapore consumers expect a higher rate of inflation than they did a quarter ago, as they anticipate low interest rates and excess liquidity for the foreseeable future, says the latest Singapore Index of Inflation Expectations report.

The September online poll of a representative sample of 400 consumers generated a composite index showing inflation expectations of 4.57 per cent for the year ahead, up from 4.4 per cent in June.

The index, compiled by Singapore Management University's Sim Kee Boon Institute for Financial Economics (SKBI) and sponsored by MasterCard, also shows that consumers now expect headline inflation for the year ahead of 4.57 per cent, up from 4.45 per cent in June.

Expectations for core inflation, which excludes accommodation and private transport costs, have also inched higher. The survey respondents expect core inflation of 4.65 per cent in September, up from 4.39 per cent in June.

The rollout of expansionary monetary policies "might have created a perception that 'smart money' will start flowing to financially and economically sound markets in Asia like Singapore", said Aurobindo Ghosh, the index's co- creator and programme director at SKBI.

These would include the US Federal Reserve's decision last month to buy US$40 billion in mortgage- backed securities every month, the European Central Bank's (ECB) bond-buying programme and anticipation of more cuts to banks' reserve requirement ratios in China.

An expected influx of capital flows into Singapore may have led to the increase in both medium and long-term inflation expectations "particularly through the real estate sector", said Dr Ghosh. Such a perception, coupled with rising domestic price pressures, could have exacerbated overall inflation expectations despite recent moderation in the price of oil and other commodities, he added.

Longer-term inflation expectations have risen slightly too. Responses on expected inflation over the next five years produced a composite index of 5.35 per cent in September, up from 5.08 per cent in June.

As Singapore's consumer price inflation has remained stubbornly above historical averages, economists have highlighted the need for policymakers to anchor the public's inflation expectations. What consumers believe about where prices are headed influences their spending and wage decisions, and could thus feed into actual inflation down the road.

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