Monthly archive

These are the research findings of the 31st round of quarterly release for the DBS-SKBI Singapore Index of Inflation Expectations (SInDEx) Survey at the Sim Kee Boon Institute for Financial Economics (SKBI), Singapore Management University (SMU).

These are the research findings of the 32nd quarterly release 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 polled at 2.9% in June 2019. The reading compares to 3.1% polled in March 2019, and the recent second quarter (2018-19) average of 3%. The overall CPIEx Inflation Expectations, after adjusting for potential behavioral biases and re-combining across components, were also at 2.9% in June 2019 compared to 3.1% in March 2019. This also suggests that Singaporeans’ inflation expectations are well-grounded from both the aggregated and the components-wise comparisons. One-year-ahead inflation expectations, adjusted for behavioral biases, dropped to 2% in June 2019, reverting to its most frequently polled value since inception in June 2018 (Fig 3).

Excluding accommodation and private road transportation related costs, the One-year-Ahead Core CPIEx inflation expectations stayed unchanged 3.1% in June 2019 from March 2019. For a subgroup of the population who own their accommodation and use public transport, the One-year-Ahead CPIEx core inflation expectations inched up to 3.1% from 3.0% in March 2019. This subgroup’s expectations of core inflation follow the Singapore Core Inflation Expectations readings, as unlike the general population they are not exposed to private road transportation or accommodation expenses.

DBS-SKBI SInDEx survey was augmented in June 2018, based on a joint research study conducted by SMU researchers in collaboration with the Monetary Authority of Singapore (MAS) and the Behavioral Insights Team, where respondents were polled about their perceptions of components of the Consumers Price Index (CPI) and adjusted for possible behavioral biases prevalent in online surveys.

Based on the recommendations of that study the research team had, since March 2019 polled the one-year-ahead inflation expectations of all of the major components of CPI-All Items inflation. Compared to March 2019, the June 2019 survey revealed inflation expectations across all categories have either stayed the same or dropped quarter on quarter, although without the same quarterly benchmark we were not able to conclude if the moderation is a peculiarity or a natural quarterly seasonality of these indices. The component inflation expectations indices that dropped in June 2019 survey compared to March 2019 are healthcare, education, recreation and communications.

Dr. Taimur Baig, DBS Chief Economist, commented, “Despite a weakening of growth in recent quarters and sub-1% headline inflation for several years, inflation expectations continue to hover around 3% in Singapore. This interesting finding suggests factors such as perceptions about broader cost of living continue to persist in a sticky manner.”

For the longer horizon, the Five-year-Ahead CPIEx inflation expectations in the March 2019 survey edged down to 3.9% from 4.1% in March 2019. The current polled number is lower than the long-term (from 2012-19) average of 4.2%.

The Five-year-Ahead CPIEx core inflation expectations (excluding accommodation and private road transportation related costs) stayed unchanged at 3.8% in June 2019 from March 2019. Overall, the composite Five-year-Ahead SInDEx5 dropped to 3.8% in June 2019 from 3.9% in March 2019, much lower compared to its historical average of 4.1%.

SMU Assistant Professor of Finance and Principal Investigator of the DBS-SKBI SInDEx Project, Aurobindo Ghosh observed, “The World Bank, in its semiannual Global Economic Prospects (June 2019), have underscored the fragility in the global growth momentum with downside risks including a significant drop in global trade growth and consequent negative impact on business confidence. These headwinds to global growth might have slightly dampened inflation expectations in Singapore as well.

“Generally, on a year-on-year basis, there have been smaller declines in accommodation costs and private road transportation costs have picked up, although increases in the costs of food, fuel & utilities and other travel & transport have moderated in recent months. Furthermore, overall and non-energy import prices have been low. Softening labor market have also somewhat reduced the price pressure passed through to consumers. All these counterbalancing factors in net have caused overall inflation expectations CPIEX to move marginally downwards while the Core CPIEx Inflation expectations have remained unchanged. The DBS-SKBI survey also have provisions for adjusted indices to account for potential behavioral bias in survey responses. The median inflation expectations, after adjustment for behavioral biases for both Headline and Core Inflation Expectations, drops to 2% and 2.2% respectively, which are lower than the unadjusted indices reported. These are consistent with several academic studies, such as the Michigan-Reuters Survey in the US and the more recent surveys in New Zealand on persistent biases in inflation expectations.” Prof. Ghosh added.

These are the research findings of the 33rd round of quarterly release for 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 polled at 3.2% in September 2019. The reading compares to 2.9% polled in June 2019, and the previous five-year third quarter (2014-18) average of 3%.

The overall CPIEx Inflation Expectations, after adjusting for potential behavioral biases and re-combining across components, was at 3.3% in September 2019 compared to 2.9% in June 2019. The aggregate inflation expectations after correcting for behavioral biases increased to 3% in September 2019, compared to 2% in June 2019.

Excluding accommodation and private road transportation related costs, the One-year-Ahead Core CPIEx inflation expectations increased to 3.3% in September 2019 compared to 3.1% polled in June 2019. For a subgroup of the population who own their accommodation and use public transport, the One-year-Ahead CPIEx core inflation expectations inched up to 3.2% in September 2019 from 3.1% in June 2019. This subgroup’s expectations of core inflation closely resembles the Singapore Core Inflation Expectations, as unlike the general population they are not exposed to private road transportation or accommodation expenses.

The one-year-ahead composite index SInDEx1, that puts less weight on more volatile components like accommodation, private transport, food and energy, polled at 3.2% in September 2019 compared to 3.0% in June 2019.

DBS Chief Economist and Managing Director of Group Research, Dr. Taimur Baig commented, “Inflation remains low worldwide, with Singapore at the center of that narrative. While such trend is likely to persist, signs of a short-term bottom in inflation, both actual and expected, have emerged. Food and energy prices are low, but not falling any further. The survey readings are consistent with around 3% inflation expectations in Singapore over the medium term. ”

SMU Assistant Professor of Finance and Principal Investigator of the DBS-SKBI SInDEx Project, Aurobindo Ghosh observed, “Economic and policy uncertainty remain elevated worldwide, while growth expectations have dimmed. Accordingly, MAS has followed suit with major global economies to ease monetary policy in their October policy decision.

”Against this background, the uptick in inflation expectations is a tad surprising. Academic literature has highlighted a natural tendency of survey based inflation expectations measures to often be biased upwards despite adjustments. This has been widely observed in survey based methods in the University of Michigan Surveys of Consumers in the US, and more recently in New Zealand and Italy. It is therefore premature to read anything major from the latest findings ” Prof. Ghosh added.

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 about their perceptions of components of the Consumers Price Index (CPI) and adjusted for possible behavioral biases prevalent in online surveys.

Based on the recommendations of that study, the research team had, since March 2019 polled the One-year-Ahead inflation expectations of all of the major components of CPI-All Items inflation. Compared to June 2019, the September 2019 survey revealed inflation expectations across all categories have either stayed the same or inched up quarter on quarter, although without the same quarterly benchmark we were not able to conclude if the uptick is a peculiarity or a natural quarterly seasonality of these indices. The component inflation expectations indices that increased in September 2019 survey compared to June 2019 are transport, healthcare, education, recreation and communications.

For the longer horizon, the Five-year-Ahead CPIEx inflation expectations in the September 2019 survey elevated to 4.1% from 3.9% in June 2019. The current polled number is lower than the long-term (from 2012-19) average of 4.2%.

The Five-year-Ahead CPIEx core inflation expectations (excluding accommodation and private road transportation related costs) stayed unchanged at 3.9% in September 2019 from 3.8% in June 2019. Overall, the composite Five-year-Ahead SInDEx5 inched up to 4% in September 2019 from 3.8% in June 2019, slightly lower compared to its historical average of 4.0%.

Methodology

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 helps researchers understand the behavior and sentiments of decision makers in Singaporean households. DBS Group Research is a co-sponsor and research partner together 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 1-year inflation expectations and the 5-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.

These are the research findings of the 34^th round of quarterly release for 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 remained unchanged at 3.2% in December 2019, from September 2019, and largely the same as the 2011-18 fourth quarter average of 3.3%.
• The overall CPIEx Inflation Expectations, after adjusting for potential behavioral biases and re-combining across components, eased to 3% in December 2019 compared to 3.3% in September 2019.
• Excluding accommodation and private road transportation related costs, the One-year-Ahead Core CPIEx inflation expectations was slightly higher at 3.4% in December 2019 compared to 3.3% in September 2019.
• For a subgroup of the population who own their accommodation and use public transport, the One-year-Ahead CPIEx core inflation expectations pared to 3% in December 2019 from 3.2% in September 2019. Not being exposed to private road transportation or accommodation expenses, this subgroup’s expectations of core inflation closely resemble the Singapore Core Inflation Expectations.
• The one-year-ahead composite index SInDEx1, that puts less weight on more volatile components like accommodation, private transport, food and energy, polled at 3.2% remained unchanged in the December 2019 SInDEx survey.

DBS Chief Economist and Managing Director of Group Research, Dr. Taimur Baig commented, “Unlike recent developments in China and India, where idiosyncratic factors have pushed up food prices, along with the overall CPI, prices have been remarkably stable in Singapore lately. Despite an impending GST hike, inflation expectations remain well anchored.”

“The stability of Singapore’s inflation expectations also contrasts with a similar survey conducted by the Melbourne Institute which showed consumer inflation expectations in Australia rising in Q4, coincident with the bushfires that have only intensified recently,” noted SMU Professor and SKBI Director Dave Fernandez.

SMU Assistant Professor of Finance and Principal Investigator of the DBS-SKBI SInDEx Project, Aurobindo Ghosh observed, “The global economy is facing significant headwinds from the sluggish growth in China and India, which is affecting global consumer confidence, despite the US economy showing significant resilience. Against this backdrop, Singaporeans seem to have calibrated their inflation expectations to hold steady in the medium term despite accommodative monetary policy at home and abroad.”

For the longer horizon, the Five-year-Ahead CPIEx inflation expectations in the December 2019 survey stayed unchanged at 4.1% compared to September 2019. The current polled number is the same as the 2011–2018 fourth quarter average of 4.1%.

The Five-year-Ahead CPIEx core inflation expectations (excluding accommodation and private road transportation related costs) fell from 3.9% in September 2019 to 3.6% in December 2019. Overall, the composite Five-year-Ahead SInDEx5 inched down to 3.8% in December 2019 from 4% in September 2019. In comparison, the 2011–2018 fourth quarter average value of the composite Five-year-Ahead SInDEx5 was at 4%.

“While designing the DBS-SKBI SInDEx survey questionnaire, SMU researchers have included several methods of validating and mitigating possible behavioural biases which academic researchers have identified as challenges to survey-based measures of inflation expectations. It has also been conjectured by policy academics and practitioners that while the overall level of inflation expectations using survey-based measures might be biased upwards, the change points and comparisons with past surveys signals the changes in inflation expectations better,” Prof. Ghosh added.

These are the research findings of the 35th round of quarterly release for the DBS-SKBI Singapore Index of Inflation Expectations (SInDEx) Survey at the Sim Kee Boon Institute for Financial Economics (SKBI), Singapore Management University (SMU).

• In this survey, we introduced two new ad-hoc questions related to COVID-19, asking respondents for their view on its likely effects on the Singapore economy and inflation expectations. Note that the reference period for the survey was March 20 to 31, which included the announcements of the “Resilience Budget” (March 26) and MAS policy decision (March 30), but prior to the outset of the “circuit breaker” period and “Solidarity Budget”.
• The majority of survey respondents (roughly 60%) generally expects the COVID-19 situation to have a “moderate impact” on both the Singapore economy and household inflation expectations, with the effects perhaps lasting “around one year."
• One-year-Ahead headline inflation expectations edged down to 3.1% in March 2020, from 3.2% in December 2019, slightly down compared to 2012-19 first quarter average of 3.4%.
• The overall CPIEx Inflation Expectations, after adjusting for potential behavioral biases and re-combining across components, eased to 2.9% in March 2020 compared to 3.0% in December 2019.
• Excluding accommodation and private road transportation related costs, the One-year-Ahead Core CPIEx inflation expectations corrected to 3.1% in March 2020 compared to 3.4% in December 2019.
• For a subgroup of the population who own their accommodation and use public transport, the One-year-Ahead CPIEx core inflation expectations pared to 2.9% in March 2020 from 3.0% in December 2019. Not being exposed to private road transportation or accommodation expenses, this subgroup’s expectations of core inflation closely resemble the Singapore Core Inflation Expectations.
• The one-year-ahead composite index SInDEx1, that puts less weight on more volatile components like accommodation, private transport, food and energy, polled at 3.1% in March 2020 compared to 3.2% in the December 2019 SInDEx survey, below the 2012-2019 first quarter average of 3.4%.
• Around 57% believe the impact on inflation from COVID-19 would be in the medium term (or around 12 month ahead) but about 30% believe it might have a longer term (or around five year ahead) impact on inflation.
• In addition, around 10% of Singaporeans expect that there will be a 10% or more reduction in salary in the next 12 months, even though the median salary increment expectation is close to zero. However, the perception of 10% or more drop in their personal income over next 12 months does not seem to be associated with their view on the impact on COVID-19.

DBS Chief Economist and Managing Director of Group Research, Dr. Taimur Baig commented, “Surveys of expectations are the most valuable at times like these, with a global pandemic affecting jobs, wages, and the overall outlook. Faced with deflationary shocks and employment/income insecurities, survey responses will portray vividly the downside to prices and sentiments going forward. The latest survey shows a marginal easing of expectations, perhaps indicating incomplete passthrough of global oil price decline at local pumps, as well as lingering hopes of a deep but short contraction in activities. We are sure the next round of survey will offer insights more in line with expectations of weaker demand and prices.”

SMU Professor and SKBI Director Dave Fernandez noted that “While most expect the COVID-19 situation to have a ‘moderate impact’ on the domestic economy and household inflation expectations, Singapore, like other small and trade-dependent economies, will likely be more susceptible to the negative economic effects from the pandemic. In addition, the combination of demand destruction and supply disruption as a result of COVID-19 further complicates the current situation.”

SKBI Principal Research Associate Thomas Lam underscored that “Interestingly, the proportion of surveyed Singaporean households leaning toward the pandemic having a ‘significant’ and ‘longer-term’ imprint--approximately 25% to 30% of respondents--is more than double those expecting it to fade quickly with trivial effects.”

For the longer horizon, the Five-year-Ahead CPIEx inflation expectations in the March 2020 survey stayed unchanged at 4.1% compared to December 2019. The current polled number is lower than the 2012–2019 first quarter average of 4.3%.

The Five-year-Ahead CPIEx core inflation expectations (excluding accommodation and private road transportation related costs) inched up from 3.6% in December 2019 to 3.7% in March 2020. Overall, the composite Five-year-Ahead SInDEx5 inched up to 3.9% in March 2020 from 3.8% in December 2019. In comparison the 2012–2019 first quarter average value of the composite Five-year-Ahead SInDEx5 was at 4.1%.

SMU Assistant Professor of Finance and founding Principal Investigator of the DBS-SKBI SInDEx Project, Aurobindo Ghosh observed, “The global economy seems to be going through a generational event, exacerbated by oil price wars by Saudi Arabia and Russia which has abated recently with an agreement to reduce supply. As a small open economy, Singapore will feel the brunt of these in its growth outlook. However, in terms of overall inflations expectations, Singaporeans polled seem to have a collective cognitive dissonance. The median term or One-year-Ahead inflation expectations corrected downwards slightly across the board, but the short term supply crunch provided some resistance in lowering inflation expectations. The long term or Five-year-Ahead expectations stayed largely unchanged owing mainly to the global uncertainty, the massive stimulus spending and the recent oil price slump. These results signal some levels of anchoring of inflation expectations of Singaporeans who are cautiously optimistic of a V-shaped recovery and normalization of the dislocated supply chain.”

These are the research findings of the 36th round of quarterly release for 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 edged down to 3.0% in June 2020, from 3.1% in March 2020, slightly down compared to the second quarter average of 3.3% since the survey’s inception in 2012 till-2019.

The overall CPIEx Inflation Expectations, after adjusting for potential behavioral biases and re-combining across components, remained unchanged at 2.9% in June 2020 compared to March 2020.

In the June 2020 wave, we did an in-depth survey on potential impact of Covid-19 on inflation expectations of different components of CPI. Overall, food and healthcare cost inflation expectations have moderately significant positive impact possibly due to the expected disruption from the pandemic, while other components are not impacted. Analyzing the impact of Covid-19 on overall inflation expectations, there is a divergence of views -- about half the respondents expect a positive impact while the other half expects a negative impact.

Excluding accommodation and private road transportation related costs, the One-year-Ahead Core CPIEx inflation expectations edged up slightly to 3.2% in June 2020 (3.1% in March). This can perhaps be attributed to the increased level of uncertainty particularly related to a cognitive dissonance in terms of the impact of the Covid-19 crisis on the dislocation of supply chains once the economy reopens.

As a robustness check on core inflation expectations, for a subgroup of the population who own their accommodation and use public transport, the One-year-Ahead CPIEx core inflation expectations pared to 2.8% in June 2020 from 2.9% in March 2020. Not being exposed to private road transportation or accommodation expenses; this subgroup’s expectations of core inflation closely resemble the Singapore Core Inflation Expectations. The divergence in views in the subgroup, compared to the overall Core CPIEx inflation expectations, is probably due to the heightened level of uncertainty prevalent in the economy with an overall modest downward trend in inflation expectations.

The One-year-Ahead composite index SInDEx1, that puts less weight on more volatile components like accommodation, private transport, food and energy, polled at 3.1% in June 2020, down from 3% in the March 2020 SInDEx survey, and below the second quarter average of 3.4% since the survey’s inception in 2012 till 2019.

In June 2020, around 79% of the survey respondents believe Covid-19’s impact on inflation would be significant, and 78.6% believe that it will have a significant impact on  the economy.

In addition, around 13.1% of Singaporeans polled expect there will be a more than 10% reduction in salary in the next 12 months, while the median salary increment expectation is between -1% and 1%. In addition, the salary increment and their belief in the length or duration of Covid-19’s impact seems unrelated.

SMU Assistant Professor of Finance and founding Principal Investigator of the DBS-SKBI SInDEx Project, Aurobindo Ghosh observed, “With global infection rate at more than 13 million and more than 0.5 million deaths, and reopening plans being rolled back in different developed and large emerging markets, it’s hardly surprising that Singaporeans are treading cautiously about future prospects of price changes. This can explain the divergence in views on the impact of Covid-19 on the Singapore Core inflation expectations with temporary price increase expected in components like food and healthcare, the former possibly being impacted by supply chain dislocations and the latter due to longer term impact of Covid-19. Over half of respondents expect Covid-19 to contribute positively to inflation in healthcare and food, while more respondents expect Covid-19 to dampen inflation in other CPI components. According to some ongoing global studies by Alberto Cavalho (2020) and the UK Office of National Statistics (ONS), perceived inflation rate might deviate from the official headline inflation owing partly to significant changes in consumption patterns induced by the pandemic. In general, consistent with other academic studies on survey based instruments, Singaporeans’ inflation expectations seem to be capturing the direction of movement better than the level of inflation.“

DBS Chief Economist and Managing Director of Group Research, Dr. Taimur Baig commented, “Singaporeans are facing difficult and uncertain economic circumstances, which would likely weigh on their expectation of employment and wages in the near term. However, sentiments may have stabilized to some extent lately owing to multiple support packages from the government. The findings of the latest round of the DBS-SKBI survey are consistent with the narrative of well anchored expectations undergoing a downward drift.”

SMU Professor and SKBI Director Dave Fernandez noted that “The negative shock of COVID-19 to Singaporeans was abundantly evident in this survey, with some expecting double-digit salary reductions and nearly 80% seeing the hit to the economy and inflation as ‘significant’ and ‘longer term.’ Hopefully, the easing of restrictions presages a potential bottoming of this downshift in expectations, as has started to become evident in household surveys outside of Singapore, such as in Australia.”

According to SKBI Principal Researcher Thomas Lam, “An ongoing challenge amid the pandemic is determining the perceived tradeoffs between safeguarding the population and protecting livelihoods given incomplete information. The details from the latest survey suggest that roughly four out of seven view safeguarding the population, especially vulnerable groups, as viable only in the short- to medium-term (not beyond one year).  But the proportion in favor of preserving jobs and the economy is actually more than twice as large as those who value unconditional public health measures.”

For the longer horizon, the Five-year-Ahead CPIEx inflation expectations in the June 2020 survey declined to 3.6% compared to 4.1% in March 2020. The current polled number is significantly lower than the second quarter average of 4.1% since the survey’s inception in 2012 till 2019).

The Five-year-Ahead CPIEx core inflation expectations (excluding accommodation and private road transportation related costs) remained unchanged at 3.7% in June 2020 compared to March 2020. Overall, the composite Five-year-Ahead SInDEx5 dropped to 3.6% in June 2020 from 3.9% in March 2020. In comparison, the second quarter average value of the composite Five-year-Ahead SInDEx5 was 4.1% since the survey’s inception in 2012 till 2019.

“Longer term impact on inflation expectations is less predictable; however, there seem to be a trend of a larger downward impact of inflation expectations in the long term given that economies around the world are going into a Covid-19 induced downturn. We polled Singaporeans on their views of the scenarios at which they think economies should reopen with due mitigation measures like wearing face masks, social distancing and personal hygiene. We found that around 80% of respondents believe that policymakers should prioritize life over livelihood in the short run, particularly of the vulnerable population, even at the cost of short-term economic pain before reopening the economy. This is higher than the Edelman Trust Barometer Spring update in April 2020, where about 67% of respondents globally prioritized saving lives at the cost of economic damage,” Professor Ghosh observed.

These are the research findings of the 37th round of quarterly release for 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 significantly dropped to 1.9% in September 2020, from 3.0% in June 2020, much lower compared to the third quarter average of 3.3 % from 2012 till 2019. The inflation expectations for headline inflation is the lowest since the inception of the Singapore Index of Inflation Expectations Survey in 2011.
• The significant drop in inflation expectations across the board is emblematic of some degree of anchoring of inflation expectations in line with current published data. As a comparison benchmark, the second quarter CPI All-Items inflation released by MAS is -0.7% (dropping steeply from -0.5% in the first quarter) while the MAS Survey of Professional Forecasters (MAS SPF) data released in September 2020 polls CPI All-Item inflation expectations of -0.4% for 2020 and the MAS SPF median forecast for 2021 is 0.7%.
• The overall CPIEx Inflation Expectations, after adjusting for potential behavioural biases and re-combining across components, dropped to 2.8% in September 2020 compared to 2.9% in June 2020. The general drop in the behavioural bias adjusted inflation expectations seems to be more moderate. We also observed that the unadjusted overall inflation expectations of 1.9% is closer to the median of free response headline inflation expectations of 2%, this suggests that we have managed to reduce the behavioural bias known as “anchoring bias” that might have also contributed to the relative decline.
• In the September 2020 wave, an in-depth survey on the potential impact of Covid-19 on inflation expectations of different components of CPI was conducted. Overall, food and healthcare cost inflation expectations have limited positive impact possibly due to the expected disruption from the pandemic, while other components are not impacted.
• Analyzing the impact of Covid-19 on overall inflation expectations, and components like food, accommodation, transportation, healthcare, there is a divergence of views -- about half the respondents expect a positive impact while the other half expect a negative impact. Following the academic work by Alberto Cavallo of Harvard Business School (2020) and the UK Office of National Statistics (ONS), we further asked respondents to check if there were any substantive changes to their consumption basket. Due to the predominance of Work from Home (WFH) arrangements, there seemed to be an estimated moderate decline in budget share for Transportation cost. There was also a moderate decline in the budget share for Recreation and Culture cost owing mainly to restrictions of entertainment facilities. A moderate decline was observed in the budget share of Clothes and Footwear, both of which might be due to belt tightening of households.
• Excluding accommodation and private road transportation related costs, the One-year-Ahead CPIEx core inflation expectations corrected downwards to 2.1% in September 2020 (from 3.2% in June 2020). This drop is indicative of a possible realization of lower levels of growth prospect worldwide which is having a downward impact on inflation expectations in some developed nations.
• For a subgroup of the population who own their accommodation and use public transport, the One-year-Ahead CPIEx core inflation expectations pared to 1.9% in September 2020 from 3.1% in June 2020. Not being exposed to private road transportation or accommodation expenses, this subgroup’s expectations of core inflation closely resemble the Singapore Core Inflation Expectations.
• The One-year-Ahead composite index SInDEx1 that puts less weight on more volatile components like accommodation, private transport, food and energy, polled at 2% in September 2020, down from 3% in the June 2020 SInDEx survey, and below the third quarter average of 3.3% since the survey’s inception in 2012 till 2019.
• In September 2020, around 77% of the survey respondents believe Covid-19’s impact on inflation would be significant compared to 79% in June 2020. The share of survey respondents who feel that Covid-19 will have long-term impact on inflation remained stable at around 80%.
• In addition, around 24.3% of Singaporeans polled expect there will be a more than 5% reduction in salary in the next 12 months, while the median salary increment expectation is between -1% and 1%.

Figure 1: One-year-Ahead-inflation expectations: The chart show 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 11-18, 2020.

Source: SKBI, SMU

SMU Assistant Professor of Finance and founding Principal Investigator of the DBS-SKBI SInDEx Project, Aurobindo Ghosh observed, “There could be a few reasons for the drop in inflation expectations besides a general increase in risk and global economic uncertainty in projections highlighted by IMF World Economic Outlook in October 2020. First, it signals a broader decline in inflation expectations that also reflects the low levels of inflation expectations that are forecasted by professional forecasters. Second, we adjusted the options for the choices to be more in line with the observed numbers so as to avoid the behavioural bias called ‘anchoring’. Finally, we see some level of divergence of groups with different levels of inflation expectations possibly due to the change of basket composition, such as a reduction in transport, recreation and clothing and footwear categories. However, component-wise indices have generally stayed put or declined slightly from the previous wave in June 2020 and shows slightly higher estimates when aggregated. In particular, respondents feel that food and healthcare inflation will have moderately positive impact due to the global pandemic.”

DBS Chief Economist and Managing Director of Group Research, Dr. Taimur Baig commented, “A general decline in inflation expectations, a common thread in high income societies in the past decade, has become even more entrenched due to the Covid crisis and associated uncertainties. Singapore, in this regard is no exception, and the latest readings from the DBS-SKBI indices are particularly revealing about the sentiment of consumers. We do however believe that with a recovery shaping up, inflation expectations will recover somewhat in the coming quarters, as they have elsewhere in advanced economies.”

For the longer horizon, the Five-year-Ahead CPIEx inflation expectations in the September 2020 survey declined to 3% compared to 3.6% in June 2020. The current polled number is significantly lower than the third quarter average of 4% since the survey’s inception in 2012 till 2019.

The Five-year-Ahead CPIEx core inflation expectations (excluding accommodation and private road transportation related costs) dropped to 2.9% in September 2020 compared to 3.7% in June 2020. Overall, the composite Five-year-Ahead SInDEx5 dropped to 2.9% in September 2020 from 3.6% in June 2020. In comparison, the second quarter average value of the composite Five-year-Ahead SInDEx5 was 4 % since the survey’s inception in 2012 till 2019.

“Longer term inflation expectations also see some corrections across the board possibly due in part to the recalibrating of options in line with published data to reduce anchoring bias. In a survey of respondents on their views of the prioritization prospects of the life vs. livelihood debate as most governments including Singapore look to cautious reopening, we find some changes since our last survey. In June 2020, 80% of the respondents opined that at least some short-term economic costs could be borne to protect vulnerable population, this figure fell to about 78% in September 2020. As a measure of the tradeoff between prioritizing economic growth compared to the cost to health, the so-called livelihood over life debate, the ratio was 3.2 in September 2020 compared to 2.3 in June 2020. This means that for every 1 person who wanted to prioritize life over livelihood, there were 3 who prioritized livelihood over life, up from 2 in the June 2020 survey. These observations might signal a higher public appetite of normalization of economic activities that governments are paying heed to globally,” Professor Ghosh observed.

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 11-18, 2020. 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 or headline inflation forecasts and the yield spread of 10-year and 1-year Singapore Savings Bonds (SSB).

Source: SKBI, SMU, MAS, Department of Statistics

These are the research findings of the 39th round of quarterly release for 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 continue to recover, rising to 2.7% in March 2021, from 2.2% in December 2020. Headline inflation expectation has been on an upward trend since September 2020, although it remains modest, with a lower reading than the historical (2012-2020) first quarter average of 3.3%.
• Three months since the beginning of Phase 3 reopening, some semblance of normalisation and global cues of recovery with the massive rollout of various vaccines might have continued to buoy inflation expectations together with positive sentiments about global recovery. As a comparison benchmark, the MAS Survey of Professional Forecasters (MAS SPF) data released in March 2021 showed that the median forecasts of CPI All-Items inflation for 2021 was 0.9%, up from their estimate of 0.6% in December 2021. The latest Department of Statistics’ CPI All-Items inflation reading in February 2021 was 0.7%.
• The overall CPIEx Inflation Expectations, after adjusting for potential behavioural biases and re-combining across components, edged down to 3.1% in March 2021 from 3.2% in December 2020.  Inflation expectations for majority of the components like food, transport, healthcare, education, recreation and culture, clothing & footwear, household durables & services and communication have remained unchanged, while that for housing & utilities have come down marginally. In comparison, miscellaneous goods and services like personal care and personal effects have gone up slightly. We also observed that the free-response unadjusted overall inflation expectations increased to 3.0% in March 2021 compared to 2.5% recorded in the December 2020 survey, suggesting an uptick in overall inflation expectations that is revealed in the March 2021 survey. The slight correction of recombined index is generally against a more discernable upward trend of aggregate inflation expectations measures.
• In the March 2021 wave, continuing the analysis we embarked on since September 2020, an in-depth survey on the potential impact of Covid-19 on inflation expectations of different components of CPI was conducted. Similar to the December wave, we found that the inflation expectations for most components were not significantly influenced by Covid-19, except for healthcare inflation which depicted a slight uptick.
• Following the academic work by Alberto Cavallo of Harvard Business School (2020) and the UK Office of National Statistics (ONS), respondents were asked if there were any substantive changes to their consumption basket. In September 2020, we observed moderate declines in households’ spending on clothing & footwear, transport and recreation & culture. However, households’ consumption patterns appear to continue at pre-COVID norms in March 2021, similar to the findings in December 2020, as consumer spending picks up and economic activities resume. So it seems the consumption basket change was a transient phenomenon which has since dissipated.
• Excluding accommodation and private road transportation related costs, the One-year-Ahead CPIEx core inflation expectations edged up to 2.7% in March 2021 (from 2.5% in December 2020). This increase possibly reflect renewed economic activities, as well as the recovery of global inflation alongside an upswing in world commodity prices such as oil.
• For a subgroup of the population who owns their accommodation and uses public transport, the One-year-Ahead CPIEx core inflation expectations also increased to 2.6% in March 2021 from 2.1% in December 2020. Not being exposed to expenses related to private road transportation or housing rentals, this subgroup’s expectations of core inflation closely resemble the Singapore Core Inflation Expectations.
• The One-year-Ahead composite index SInDEx1 that puts less weight on more volatile components like accommodation, private transport, food and energy, polled at 2.7% in March 2021 compared to 2.3% polled in December 2020. This remained below the first quarter average of 3.4% since the survey’s inception in 2012 till 2020.
• In March 2021, around 67% of the survey respondents reported their belief that Covid-19’s impact on inflation would be significant compared to 71% in December 2020. The share of survey respondents who feel that Covid-19 will have long-term impact on inflation also declined to around 67%, from nearly 72% in December 2020. Both the results indicate that, with incremental rollout of vaccination worldwide, more respondents feel that the end of the pandemic is in sight.
• In addition, around 13.4% of the Singaporeans polled expect a more than 5% reduction in salary in the next 12 months, this is a lower proportion compared to 18.1% in December 2020. The median salary increment expectations stayed between -1% and 1%.
• As a measure of the tradeoff between prioritising economic growth compared to the cost to life, the so-called livelihood over life debate, the ratio was 2.3 in March 2021, lower than 3.1 in December 2020. This means for every person who prioritise life over livelihood, there are two who prioritised livelihood over life. As the work life is getting more normalised, and the economy is slowly but steadily opening up, this choice of life over livelihood is probably becoming less of an issue.

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 March 15-23, 2021.

DBS Chief Economist and Managing Director of Group Research, Dr. Taimur Baig commented, “Singapore’s economic recovery continued through the first quarter, along with a pronounced upward trend in a wide range of prices in the global market for commodities and manufactured goods. Unsurprisingly, these developments have been accompanied by a revival in inflation expectations, although they remain well anchored. We expect to see strong growth outturns worldwide in the second half of the year as pandemic management turns a corner, which should also be marked by further but modest increases in inflation expectations.”

SMU Assistant Professor of Finance and founding Principal Investigator of the DBS-SKBI SInDEx Project, Aurobindo Ghosh observed, “In their World Economic Outlook release in April 2021, IMF economists have increased their growth forecasts to 6% for 2021. This is attributed mainly to the phenomenal rollout of the Covid-19 vaccines and strong expected recovery on the back of unprecedented fiscal stimulus globally in preparation for a post- pandemic world. A cyclical rise in commodity prices including oil price, the pace of recovery, along with record low interest rates globally have triggered a debate on increased inflation risk among practitioners, academics and policymakers. In the survey conducted in March 2021, we find an uptick in inflation expectations across the board even though the signal is less clear among the components of inflation as consumption basket patterns seem to have reverted to pre-pandemic levels. Consumer sentiments seem to have been buoyed by the record- breaking financial markets rather than the more uncertain and divergent growth in jobs and trade.”

For the longer horizon, the Five-year-Ahead CPIEx inflation expectations in the March 2021 survey edged up to 3.4% from 3.2% in December 2020. The current polled number is significantly lower than the first quarter average of 4.2% since the survey’s inception in 2012 till 2020.

The Five-year-Ahead CPIEx core inflation expectations (excluding accommodation and private road transportation related costs) also increased to 3.3% in March 2021 compared to 3.1% in December 2020. Overall, the composite Five-year-Ahead SInDEx5 also increased to 3.3% in March 2021 from 3.1% in December 2020. In comparison, the first quarter average value of the composite Five-year-Ahead SInDEx5 was 4 % since the survey’s inception in 2012 till 2019.

“While it is often accepted that investment activity based measures of inflation expectations are the “gold standard,” it is based on informed economic agents including institutional hedge funds who are actively trading in the bond market including in Treasury Inflation Projected Securities (TIPS). In the absence of such measures, our best guess is to survey individuals who are making consumption and investment decisions, as those are the economic agents who matter the most as it affects their pocketbook. However, perceptions of uncertainty and behavioural biases might also lead to overly pessimistic projection of long-term inflation expectations that might subsequently lead to un-hinged inflation expectations. In its 10th year of existence, DBS-SKBI SInDEx survey finds Singaporean’s long-term or five=year-ahead inflation expectations indicate change of directions and longer term trends better than the level of inflation itself. Furthermore, long term inflation expectations seem to be well anchored as it does not seem to deviate too much due to the short term turmoil mainly attributable to the impact of the Covid 19 pandemic” Professor Ghosh observed.

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 March 15-23, 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).

These are the research findings of the 40th round of quarterly release for 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 remained unchanged, staying at 2.7% in June 2021 from March 2021. Headline inflation expectation, which has been on an upward trend since September 2020, remained flat, with a lower reading than the historical (2012-2020) second quarter average of 3.3%.
• As expected, MAS kept the monetary policy unchanged for their April review. As a comparison benchmark, the MAS Survey of Professional Forecasters (MAS SPF) data released in June 2021 showed that the median forecasts of CPI All-Items inflation for 2021 was 1.4%, up from 0.9% in the March 2021 survey. The latest release from Department of Statistics showed that average CPI-All Items in Jan–May this year was 1.3% higher compared to the reading in the same period last year.
• The overall CPIEx Inflation Expectations, after adjusting for potential behavioural biases and re-combining across components, edged down to 3% in June 2021 from 3.1% in March 2021.  Inflation expectations for majority of the components like food, housing & utilities, transport, healthcare, education and communication have remained unchanged, while that for recreation & culture, clothing & footwear, and miscellaneous goods and services like personal care and personal effects have come down. In comparison, inflation expectations for household durables & services have gone up slightly. We also observed that the free response behaviorally adjusted overall inflation expectations remained unchanged at 3.0% in June 2021 compared to the March 2021 survey. There seems to be a convergence of the component-wise measures of inflation expectations and the overall aggregated measures. In general, inflation expectations seem anchored.
• In the June 2021 wave, continuing the analysis we embarked on since September 2020, an in-depth survey on the potential impact of Covid-19 on inflation expectations of different components of CPI was conducted. Unlike the March 2021 wave, we found that the inflation expectations for most components including food, transport, housing & utilities, healthcare, education, communications, household durables & services, and miscellaneous goods and services, as well as overall One-year-Ahead and Five- year-Ahead inflation expectations were expected to have a limited positive impact from Covid-19. However, inflation expectations for recreation & culture and clothes & footwear did not see an uptick due to Covid-19, with retail and entertainment venues still under heightened alert phase.
• Following the academic work by Alberto Cavallo of Harvard Business School (2020) and the UK Office of National Statistics (ONS), respondents were asked if there were any substantive changes to their consumption basket. However, unlike in March 2021 when households’ consumption patterns appeared to continue at pre-Covid norms as consumer spending picked up and economic activities resumed, the June 2021 survey polled some changes in the consumption basket. In June 2021, results suggest there is some limited increase in household spending on housing & utilities, which seem to offset lower transportation expenses. Given the prevalence of work-from-home arrangement during the heightened alert phase, many employees incur lower transportation cost but higher utility expenses.
• Excluding accommodation and private road transportation related costs, the One-year-Ahead CPIEx core inflation expectations rose to 3.2% in June 2021 (from 2.7% in March 2021). This increase possibly reflected renewed economic activities, as well as the recovery of global inflation alongside an upswing in world commodity prices such as oil.
• For a subgroup of the population who owns their accommodation and uses public transport, the One-year-Ahead CPIEx core inflation expectations also increased to 2.7% in June 2021 from 2.6% in March 2021. Not being exposed to expenses related to private road transportation or housing rentals, this subgroup’s expectations of core inflation closely resemble the Singapore Core Inflation Expectations. The increase in One-year-Ahead Core inflation expectations rate might not be that dramatic but still edged up in June 2021.
• 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 2.9% in June 2021 compared to 2.7% in March 2021. This remained below the second quarter average of 3.3% since the survey’s inception in 2012 till 2020.
• In June 2021, around 70% of the survey respondents reported their belief that Covid-19’s impact on inflation would be significant compared to 67% in March 2021. The share of survey respondents who feel that Covid-19 will have long-term impact on inflation increased to around 73%, from about 67% in March 2021. Both results indicate the euphoria of the vaccine rollout might have been dampened by the tighter public health measures under Phase 2 and Phase 3 (Heightened Alert) as well as the emergence of highly transmissible and potentially virulent variants. This increased the possibility of an endemic Covid-19.
• In addition, around 12.5% of the Singaporeans polled expect a more than 5% reduction in salary in the next 12 months, this is a lower proportion compared to 14.1% in March 2021. The median salary increment expectations stayed between -1% and 1%.
• As a measure of the tradeoff between prioritising economic growth compared to the cost to life, the so-called livelihood over life debate, the ratio was 3.1 in June 2021, higher than 2.3 in March 2021. This means for every person who prioritised life over livelihood, there are three who prioritised livelihood over life. This is a clear indication that there is a demand for a return to normalcy  from the respondents, although policymakers  have to take into account potentially vulnerable groups who might not have been vaccinated yet.

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 June 17-25, 2021.

DBS Chief Economist and Managing Director of Group Research, Dr. Taimur Baig commented, “As vaccination progresses and gradual economic re-opening comes into focus, consumer confidence is likely to improve, which may also be associated with a rise in inflation expectations. But having recovered earlier this year, price expectations have stabilised in Singapore. This perhaps reflects lingering uncertainty about the timing and extent of reopening this year, casting a shadow on the outlook for further rise in demand, wages, and prices.”

SMU Assistant Professor of Finance and founding Principal Investigator of the DBS-SKBI SInDEx Project, Aurobindo Ghosh observed, “One of our objectives in this survey is to identify whether there are imminent challenges to a dashboard of component-wise inflation expectations, and not just an aggregate level. While the SInDEx survey suggests overall inflation expectations seem to flatten with prospects of Federal Reserve tapering of accommodative policy in 2023, but possible upswing in global commodity market or even a nascent commodity super-cycle seems to be pushing up the energy and commodity components and consequently medium term Singapore Core Inflation Expectations.”

“There is also some divergence in perception. Some survey respondents opined the pandemic would have a slight upward pressure on certain major components like food, housing & utilities, transport, healthcare, education etc., while others disagreed. Following Alberto Cavallo (2020), we also find that household consumption have shifted from transportation to housing & utilities, particularly because work-from-home continues to be the default option.”

For the longer horizon, the Five-year-Ahead CPIEx inflation expectations in the June 2021 survey remained unchanged at 3.4% from March 2021. The current polled number is significantly lower than the second quarter average of 4.1% since the survey’s inception in 2012 till 2020.

The Five-year-Ahead CPIEx core inflation expectations (excluding accommodation and private road transportation related costs) also remained unchanged at 3.3% in June 2021 compared to March 2021. Overall, the composite Five-year-Ahead SInDEx5 also increased to 3.4% in June 2021 from 3.3% in March 2021. In comparison, the second quarter average value of the composite Five-year-Ahead SInDEx5 was 4% since the survey’s inception in 2012 till 2019.

“In the Global Economic Prospects report released in June 2021, World Bank Group President David Malpass warned that protectionist policy might be counterproductive, and observed  that ”The pandemic not only reversed gains in global poverty reduction …but also deepened the challenges of food insecurity and rising food prices for many millions of people.” Long term inflation expectations, both the raw numbers and those adjusted for behavioural biases, seem to be stable and unchanged from the March 2021 survey. This is a strong indicator of some degree of anchoring of inflation expectations. There is also evidence of increasing fatigue due to pandemic related restrictions, as reflected in the life and livelihood debate in June 2021 where three respondents chose  to prioritise livelihood over life for every respondent who chose life over livelihood, up from two in the March 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 June 17-25, 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).

These are the research findings of the 41st round of quarterly release for 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 elevated to 3.1% in September 2021, compared to 2.7% in June 2021. Headline inflation expectation resumed its upward trend since September 2020, flattening temporarily in June 2021. However, it is still a lower reading than the historical (2011-2020) third quarter average of 3.3%.
• As a comparison benchmark, the Monetary Authority of Singapore’s Survey of Professional Forecasters (MAS SPF) data released in September 2021 showed that the median forecasts of CPI All-Items inflation for 2022 was 1.4%, up from 1.2% in the June 2021 survey. The latest release from the Department of Statistics showed that average CPI-All Items in January–August 2021 was 1.8% higher compared to the reading in the same period last year, while the latest August 2021 monthly inflation is 2.4%, year-on-year. The Monetary Authority of Singapore in their most recent policy review in October 2021 decided to tighten the monetary policy by raising slightly the slope of the Singapore dollar Nominal Effective Exchange Rate (S$NEER) for the first time since 2018 to “ensure price stability over the medium term.”
• The overall CPIEx Inflation Expectations, after adjusting for potential component-wise behavioural biases and re-combining across components, increased to 3.7% in September 2021 from 2.5% in June 2021. This is the biggest jump in this behaviorally adjusted index since we started keeping track of it in March 2019. Inflation expectations for majority of the components like food, transportation, housing & utilities, healthcare, recreation & culture,  clothing & footwear, and miscellaneous goods & services, like personal care and personal effects, witnessed at least moderate increases. Mean-while inflation expectations for education, household durables & services as well as communication have remained unchanged from the June 2021 survey.
• We also observed that the free response behaviourally adjusted overall inflation expectations increased to 3.0% in September 2021 compared to 2.0% polled in June 2021 survey. This broad-based increase of inflation expectations across components as well as the aggregated measure after adjusting for potential behavioural biases signal a degree of concern across the population that pandemic related disruptions in global supply chains and concomitant increase in energy and commodity prices might result in an upward pressure on  inflation in the medium term.
• In the September 2021 wave, continuing the analysis we embarked on since September 2020, an in-depth survey on the potential impact of Covid-19 on inflation expectations of different components of CPI was conducted. We found that the inflation expectations for food, healthcare as well as overall One-year-Ahead and Five-year-Ahead inflation expectations were expected to have a limited positive impact from Covid-19. However, for most components including transportation, housing & utilities, education, communications, household durables & services, recreation & culture, clothes & footwear and miscellaneous goods and services, respondents did not expect an uptick due to Covid-19.
• Following the academic work by Alberto Cavallo of Harvard Business School (2020) and the UK Office of National Statistics (ONS), respondents were asked if there were any substantive changes to their consumption basket. In September 2021, results suggest there is some limited increase in household spending on housing & utilities, which seem to offset lower transportation expenses. Given the prevalence of work-from-home arrangement during the Preparatory and Stabilisation phases, many employees incur lower transportation cost but higher utility expenses.
• Excluding accommodation and private road transportation related costs, the One-year-Ahead CPIEx core inflation expectations pared to 3.0% in September 2021 (from 3.2% in June 2021). This result signals some cognitive dissonance among respondents compared to other measures which seems to indicate a little upswing in broad-based inflation expectations owing mainly to supply chain disruptions and energy price increases. However, the main headwind of global inflation increases is a downward revision in growth forecasts from the International Monetary Fund.
• For a subgroup of the population who owns their accommodation and uses public transport, the One-year-Ahead CPIEx core inflation expectations also increased to 3.0% in September 2021 from 2.7% in June 2021. Not being exposed to expenses related to private road transportation or housing rentals, this subgroup’s expectations of core inflation closely resemble the Singapore Core Inflation Expectations. The trend is consistent with the general 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 3.0% in September 2021 compared to 2.9% in June 2021. This remained below the third quarter average of 3.3% since the survey’s inception in 2011 till 2020.
• In September 2021, around 64% of the survey respondents reported their belief that Covid-19’s impact on inflation would be significant compared to 70% in June 2021. The share of survey respondents who feel that Covid-19 will have long-term impact on inflation similarly declined to around 68%, from about 73% in June 2021. Both results indicate a high vaccine rollout with more than 80% fully vaccinated individuals and opening up of the vaccinated travel lanes might have increased the prospects of the reopening the economy, with an endemic Covid-19 as the new normal.
• In addition, around 13.6% of the Singaporeans polled expect a more than 5% reduction in salary in the next 12 months, this is slightly higher compared to 12.5% in June 2021. The median salary increment expectation stayed between -1% and 1%.
• As a measure of the tradeoff between prioritising economic growth compared to the cost to life, the so-called livelihood over life debate, the ratio was 2.2 in September 2021, lower than 3.1 in June 2021. This means for every person who prioritised life over livelihood, there are two who prioritised livelihood over life. This also indicates a level of divergence among Singaporeans, with some who feel the economy should be reopened fully to generate some semblance of growth and creating jobs, while others feel that protecting lives should be considered with utmost priority.

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).