Weak global inflation trends affect Singapore expectations

According to Singapore Management University, Singaporeans inflation expectation has moderated in the month of September as global markets face persistently low inflation despite accommodative monetary policies and significant policy uncertainty such as increasing protectionism.

Singapore on Weekends
Representational picture of Singapore Reuters

The one-year-ahead inflation expectations amongst Singaporeans moderated to 2.93 percent in the month of September, extending the short-term downward trend since March 2017.

According to the Singapore Index of Inflation Expectations (SInDEx) by the Sim Kee Boon Institute for Financial Economics (SKBI) at Singapore Management University (SMU), a few factors on the domestic front have contributed to the changes in the inflation expectations.

For starters, a significant slump in private road transport inflation is due mainly to lower COE premiums in the recent rounds of bidding that could have more than compensated the uptick in accommodation costs.

Additionally, there has been a significant decrease in food inflation brought by the decline in non-cooked food item prices such as bread and cereals.

Furthermore, the weakening job market has resulted in the relaxation of pass-through costs like wage pressures. This is despite certain increases in administrative, energy and utility costs.

Finally, the relative strength of the Singapore dollar against other currencies is seen to have kept a lid on imported inflation and consequently future expected energy prices.

"It appears, the net impact of these counter-balancing price pressures have resulted in an overall decline in the one-year-ahead and five-year-ahead inflation expectations of Singaporean households," the study said.

This moderation in inflation expectations came with the headwinds and fragility in the global outlook by the International Monetary Fund (IMF).

The outlook noted that the main challenges come from weaker productivity growth, persistently low inflation despite accommodative monetary policies and significant policy uncertainty such as increasing protectionism in many countries including some of the G3 economies.

"This is against the backdrop of record high stock market indices in many of the major economies including in Asia, recovering oil prices, an upswing in commodity prices and declining unemployment rates. It is therefore hardly surprising that the US Federal Reserve initiated a gradual normalisation of the monetary policy bolstered by these positive macroeconomic data," the study said.

And with the policy uncertainties around the corner, Singapore could be adversely impacted, particularly those policies that might impede multilateral trade through higher trade barriers and consequently volatile global prices.