SINGAPORE, 22 October 2024 (Tuesday) These are the research findings of the 53rd 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
- One-year-Ahead headline inflation expectations remained unchanged at 3.8% in September 2024 compared to that of June 2024. Consumers’ headline inflation expectations, trending downwards since June 2023, have flattened in line with general global trends in major economies, in spite of continued but circumspect restrictive monetary policy. Nonetheless, the third quarter One-year-Ahead inflation expectations continue to be higher than the average third quarter One-year-Ahead headline inflation expectations of 3.4% 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 2024 showed that the median forecast of the Consumer Price Index (CPI)-All Items inflation for 2024 was 2.6% (for 2025, 2.0%) while MAS Core Inflation median forecast was 2.9% (for 2025, 2.0%) (MAS SPF September 2024, Table 2 and Table A.5). The latest CPI data release from the Department of Statistics showed that CPI-All Items rose by 2.7% between January and August 2024, compared to the same period in 2023, with the latest August 2024 monthly inflation print coming in at 2.2% year-on-year (DOS CPI, September 2024). On 14 October 2024, in their fourth and final quarterly policy review in 2024, MAS maintained the rate of appreciation of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) policy band, following five consecutive tightening moves between October 2021 and October 2022 (MAS Monetary Policy Statement, Oct 2024). The current appreciating path of the S$NEER policy band is intended to 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 by January 2025.
- The overall Consumer Price Index Inflation Expectations (CPIEx), after adjusting for potential component-wise behavioural biases and re-combining across components, pared to 4.1% in September 2024 from 4.2% in June 2024. One-year-Ahead inflation expectations of major components of CPI remained unchanged, namely in components like Food (at 4%), Housing & Utilities (at 4%), Healthcare (at 5%), Education (at 4%), Household Durables & Services (at 4%), Recreation & Culture (at 4%), Clothing & Footwear (at 4%). On the other hand, Miscellaneous Goods & Services including Personal Care inched up (from 4% to 5%). Components that dipped are Transportation (from 4.5% to 4%) and Communications (from 4% to 3.2%), compared to the June 2024 poll. This broad-based stability in component-based inflation expectations signals that with a restrictive monetary policy environment in place, perceptions of inflation expectations are largely stabilising or moving down.
- The survey team also polled free-response overall inflation expectations, after accommodating potential behavioural biases by informing respondents of current aggregated economic data. We found that the One-year-Ahead headline inflation expectations remained unchanged at 4% in September 2024 compared to June 2024. These free-response polls help us to gauge perceptions of anchoring inflation expectations and consumer sentiments in an aggregated sense.
- In the September 2024 survey, continuing since June 2022, we took a more forward-looking approach in analysing the impact of global economic developments on Singapore’s economic growth and inflation.
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Overall, responding to expanding conflicts in the Middle East and Ukraine, geo-political tensions and the uncertain policy environment, Singaporean consumers surveyed in September 2024 expected a slight negative impact on the country’s economic growth over the next 12 months.
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In addition, despite a more broad-based stabilisation in inflation expectations in the face of general cost-of-living pressures, Singaporean consumers also opined in the September 2024 survey that over the next 12 months, their overall expenses are expected to increase slightly.
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In the September 2024 survey, Singaporean consumers remained almost equally split on how they felt the overall One-year-Ahead inflation scenario would unfold in the next 12 months. Around 44.8% (compared to 45.2% in June 2024) of those surveyed expect inflation to decline in the medium term of one year. This contrasts with 44.6% (compared to 45.4% in June 2024) who felt that One-year-Ahead inflation will increase. This result shows that there is continued cognitive dissonance and disagreements about inflation coming from the high level of uncertainty that is plaguing the global economy, policy environment amid the fallout of ongoing conflicts in the medium term of one year.
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In September 2024, the main reason cited by those expecting inflation to decline is the slowdown in global growth (37.4%), followed by the role of central banks in keeping interest rates high at 30.4%. A distant third, given by 19.1% of respondents, was that the resolution of supply chain disruptions is also expected to relieve price pressures. Among respondents expecting inflation to increase over the next 12 months, there was a greater variety of perceived reasons. The most common one cited was the impact of higher interest rates by the central banks of major economies (29.7%). This was followed by geopolitical uncertainties due to the conflicts between Hamas and Israel, and Ukraine and Russia (24.5%), and high demand due to the easing of pandemic-era measures (14.4%). Supply chain disruptions (14%) and fiscal measures such as the hike in GST (11.8%) were cited as other possible reasons.
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In the September 2024 survey, respondents opined that current economic conditions have no impact on One-year-Ahead inflation expectations but believed that there would be a slight downward or negative impact on the Five-year-Ahead overall inflation expectations. Component-wise, respondents expect a slight negative impact on inflation related to Transportation and Housing & Utilities, while they expect no discernible impact on Healthcare, Education, Household Durables & Services, Recreation & Culture, Communications, Clothing & Footwear, and Miscellaneous Goods & Services. We observe a significant variation of perspectives, possibly due to lived experience or behavioural bias among the respondents, which results in bimodal distributions with one segment of the population expecting a decline in inflation while another expecting an increase in inflation, both in overall and component-wise measures.
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Alberto Cavallo of Harvard Business School (Cavallo, 2020) and 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 COVID-19 pandemic. In the September 2024 survey, Singaporean consumers polled indicated that in the next 12 months, they expect no change in budget share of expenses for Education, Recreation & Culture, Communications, Clothing & Footwear, and Miscellaneous Goods & Services. However, the respondents expect a slight increase in the budget share of expenses in Food, Transportation, Housing & Utilities, Healthcare and Household Durables & Services. These results indicate that respondents expect their consumption baskets to change over the next 12 months, with a higher budget share on certain components. These changes in budget share can potentially be due to more permanent changes in consumption behaviour in the post-pandemic era, like the practice of working from home regularly or ordering groceries online, rather than buying them in-store.
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Excluding inflation expectations in Accommodation and Private Road Transportation, the One-year-Ahead CPIEx core inflation expectations for this SInDEx survey dipped to 4.0% in September 2024 from 4.1% in June 2024. This signals more volatile components like Accommodation or Private Road Transportation declined more, compared to other components of CPI.
- For a subgroup of the population who owns their accommodation and uses public transport, the One-year-Ahead CPIEx core inflation expectations declined significantly to 3.8% in September 2024 compared to 4.1% polled in June 2024 – verifying the robustness of the findings in core inflation expectations. This sub-sample measurement is potentially more representative and hence more accurate than the full sample measurement, due to high home ownership and public transport ridership in Singapore.
- Unlike the fixed radio-button 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, remained unchanged at 4.1% in September 2024 compared to June 2024. The free-response core CPIEx, declined to 3.5% in September 2024 from 4% in June 2024, reflecting a similar decline observed in the Subgroup Core Inflation Expectations. The convergence among these cognitive measures of perception of inflation expectations gives us some assurance that even after addressing some changes in price levels, individual households often adapt to current conditions and update their baskets accordingly, with the result being similar expectations. Having said that, we need to be mindful that fixed basket calculations like CPI can give us potentially higher inflation figures. A more representative and less volatile measure might be the core per capita consumption expenditure (core PCE) typically used by central banks like the Federal Reserve Board.
- 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 also declined to 3.9% in September 2024 compared to 4.0% in June 2024. It continued to be higher than the third quarter average of 3.4% since the inception of the survey.
- In addition, a marginal improvement in the job market was detected. In September 2024, 7.1% of Singaporeans polled expect a more than 5.0% reduction in salary in the next 12 months. This is slightly lower than 8.9% in the June 2024 survey. The expectation of median salary increment of between 1.0% to 5.0% also remained unchanged, compared to the June 2024 survey.
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 on a representative sample of Singaporean residents between 16 September and 24 September 2024.
DBS Bank Chief Economist and Managing Director of Group Research, Dr Taimur Baig commented, “Inflation has eased considerably from the 2022/23 peak, but there have been periods of volatility. Expectations have adjusted downward somewhat, although the journey toward full normalisation is still ongoing. Uncertainty remains about the supply and demand for goods and services, as well as liquidity and central bank signalling around the world. Inflation expectations in Singapore have been steady this year, which is a testament to MAS’s credibility.”
Dr Aurobindo Ghosh, Assistant Professor of Finance at Singapore Management University (SMU), the founding Principal Investigator of the Quarterly DBS-SKBI SInDEx Project, observed, “The International Monetary Fund, in their most recent release of the World Economic Outlook (October 2024), described the current monetary policy reaction to global inflation as the ‘Great Tightening’. The inflation that turned out to be rather persistent was characterised by a myriad of factors including post-pandemic stimulus, supply chain disruptions, spikes in commodity prices due to prolonged wars in the Russia-Ukraine crisis and the expanding Hamas-Israel conflict. However, this concerted tightening seems to be eventually winding down with major economies, including the European Union and the United States, gradually looking to normalise monetary policy as the inflation outlook seems to be heading towards their target of 2%, while growth uncertainty seems to persist. The quarterly SInDEx survey findings among Singapore households reveal Headline Inflation Expectations seem to be holding steady after gradually declining. In contrast, the core inflation expectations, excluding volatile and policy-dependent Accommodation and Private Road Transportation, seem to be inching down. The strong Singapore dollar has dampened imported inflation of higher US dollar-denominated prices but some passthrough impacts might still be present. Even after addressing behavioural biases in respondents, this gradual decline seems to be broad-based across different components (Clark, Ghosh and Hanes, 2018).”
“There are three important issues to highlight. First, the current inflation numbers are based on the consumption basket surveyed in the Household Expenditure Survey (HES) last conducted pre-pandemic (HES 2017/18). These might have changed permanently, as work-from-home arrangements have become more standard (Cavallo, 2020, Kouvavas et. al.,2020, Weber et. al., 2022). Second, there is a dichotomy of perceptions between respondents who feel inflation will go down (about 44.8%) and those who feel prices will go up (about 44.6%), and the groups differ a little on the attribution of main reasons like slowdown in global growth or monetary policy action.”
“Finally, in evaluating a pick-up in Singapore’s growth momentum and to balance their mandate of non-inflationary growth, the Monetary Authority of Singapore has kept their tight policy stance unchanged in their October 2024 Monetary Policy Review (MAS Monetary Policy Statement, October 2024).”
For the longer horizon, the Five-year-Ahead CPIEx inflation expectations remained unchanged at 4.5% in September 2024 as compared to June 2024. The current polled number continues to be slightly higher than the second quarter average of 4.2% polled since the survey’s inception in September 2011 up till 2023.
The Five-year-Ahead CPIEx core inflation expectations (excluding costs related to Accommodation and Private Road Transportation) declined significantly to 4.3% in September 2024 from 4.5% in June 2024. Overall, the composite Five-year-Ahead SInDEx5 also declined slightly to 4.4% in September 2024 from 4.5% in June 2024. In comparison, the third quarter average value of the composite Five-year-Ahead SInDEx5 is 4.1%, from the survey’s inception in September 2011 up till 2023.
After adjusting for potential behavioural biases, the free-response Five-year-Ahead Headline Inflation Expectations remained unchanged at 5% in September 2024 compared to June 2024, while the free-response Core Five-year-Ahead Inflation Expectations declined to 4% in September 2024 compared to June 2024. We observe that long-term inflation expectations, both headline and core, remained constant or have been declining despite global uncertainty, signalling movement towards anchoring of long-term inflation expectations.”
Dr Aurobindo Ghosh added, “SInDEx survey respondents’ polled long-term inflation expectations for the Five-year-Ahead Headline have stayed unchanged while the Core Inflation Expectations moderated downwards in the September 2024 survey. Even after adjusting for behavioural biases, the long-term headline inflation expectations remained flat for the second quarter in a row after declining over the last four quarters. This corroborates with the findings of the importance and accuracy of survey-based measures (Ang, Baekert and Wei, 2007), and reflects the opinion of Singaporean consumers that uncertainty in the short term will reduce in the longer term. Overall, both short-term and long-term inflationary expectations reveal there is a movement towards anchoring of inflation expectations, albeit possibly to a new normal.”
Methodology
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 of the Singapore management University. 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 Behavioural 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 2024 survey, DBS-SKBI CPIEx headline inflation expectations indices remained unchanged to June 2024. The core inflation expectations however inched down across different measures. The behaviourally adjusted component-wise and recombined inflation expectations remained unchanged or declined almost across the board. Only exception was inflation expectations for miscellaneous items including personal care which increased slightly. In free-response answers, compared to June 2024 survey, responses in the September 2024 survey polled for One-year-Ahead Headline remained unchanged while Core Inflation Expectations declined. Overall, the results indicate continued slowdown in the medium term and flattening of long 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 prioritised over life vis-à-vis those who feel the other way. This ratio increased to 4 in September 2024 compared to about 2.7 in June 2024. For every respondent who prioritised life over livelihood, there were about 4 who prioritised livelihood over life, signalling life returning to normal with an endemic Covid-19 in Singapore and focused on economic growth.
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 from 16 September 2024 to 24 September 2024. 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 Items Inflation, MAS Survey of Professional Forecasters median One-year-Ahead CPI-All Items inflation forecasts and the yield spread of 10-year and 1-year Singapore Savings Bonds (SSB).
References:
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.
Household Expenditure Survey (HES 2017/18): (https://www.singstat.gov.sg/publications/households/household-expenditure-survey, accessed on July 10, 2024)
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)
MAS Monetary Policy Statement- October 2024, (https://www.mas.gov.sg/news/monetary-policy-statements/2024/mas-monetary-policy-statement-14oct24, accessed on Oct 17 2024)
MAS Survey of Professional Forecasters (MAS SPF), September 2024, (https://www.mas.gov.sg/-/media/mas-media-library/monetary-policy/mas-survey-of-professional-forecasters/2024/survey-writeup-sep-2024-web.pdf, accessed on Oct 17, 2024)
Singapore Consumer Price Index Press Release, September 2024, Singapore Department of Statistics (https://www.singstat.gov.sg/-/media/files/news/cpiaug24.ashx, accessed on October 17, 2024)
Survey of Consumer Expenditure (SCE), 2024, “Consumers Expect Lower Inflation and Slower Home Price Growth Over the Next Year,” (Press Release on July 8, 2024), (https://www.newyorkfed.org/newsevents/news/research/2024/20240708, accessed on July 10, 2024).
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.
