Singapore's Long-Term Inflation Expectations Stable at 4.5%: A Closer Look

Singaporeans' long-term inflation expectations have remained stable at 4.5% for the year ahead, according to the latest findings from the Singapore Inflation Expectations Index. This consistency in expectations, despite fluctuations in global economic conditions, offers valuable insights into the public's perception of inflation and its implications for monetary policy.

The stability in Singaporeans' long-term inflation expectations can be attributed to several factors. Firstly, the historical average for the fourth quarter One-year-Ahead headline inflation expectations is 3.3%, which serves as a benchmark for public perceptions. Secondly, the Monetary Authority of Singapore (MAS) has maintained a consistent monetary policy, with the rate of appreciation of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) policy band remaining unchanged since October 2024. This policy is intended to reduce imported inflation and help curb domestic cost pressures, thereby ensuring medium-term price stability. Lastly, the MAS Survey of Professional Forecasters (MAS SPF) projects the Consumer Price Index (CPI)-All Items inflation for 2024 at 2.5% and for 2025 at 1.9%, while the MAS Core Inflation median forecast is 2.8% for 2024 and 1.8% for 2025. These forecasts align with Singaporeans' long-term inflation expectations, contributing to their stability.



However, the slight divergence between Singaporeans' long-term inflation expectations and the MAS's target range of 1.5% to 2.5% in the medium term may imply that the public is more cautious about future inflation trends. This could be due to various factors such as geopolitical uncertainty, ongoing conflicts, and policy uncertainty affecting global trade. The MAS may need to consider these perceptions when formulating monetary policy to ensure that its actions align with public expectations and maintain confidence in the currency and the economy.

In addition, the MAS may need to communicate its inflation management strategy more effectively to the public to help manage expectations and build trust in the central bank's ability to maintain price stability. This could involve providing more detailed explanations of the factors influencing inflation and the tools the MAS uses to manage it, as well as regular updates on the progress towards the inflation target.

In conclusion, the stability in Singaporeans' long-term inflation expectations is driven by historical averages, consistent monetary policy, economic growth and inflation forecasts, and consumer sentiments. However, the slight divergence between public expectations and the MAS's target range highlights the importance of effective communication and policy management to maintain public confidence in the central bank's ability to manage inflation. As the global economic landscape evolves, the MAS should continue to monitor and address public perceptions of inflation to ensure a stable and resilient economy.