Inflation expectations shaped by rise of premium goods: study

5 November, 2019

Photo: ‘Supermarket shopping’ from SRN’s SG Photobank

A study titled “Upgrading and Inflation Expectations in Singapore: A Survey Experiment” by Low Tuck Kwong Distinguished Professor Sumit Agarwal (NUS Business School), Mr Chua Yeow Hwee (NUS Department of Economics), and Assistant Professor Song Changcheng (SMU Lee Kong Chian School of Business) on inflation expectations was featured in The Business Times. It found that when respondents were asked to predict inflation for the year ahead before and after being exposed to different types of ice cream price data, those exposed to the latest price of the premium brand Häagen-Daaz and the older price of the mass-market brand Walls reported significantly higher inflation estimates than other respondents. The researchers concluded that exposure to prices of luxury goods upwardly biases inflation expectations. Other possible reasons for the high inflation expectations also included rising living standards and changes in product variety in Singapore as the kinds of grocery items grew from 2016 to 2017.

The researchers suggested that policymakers can counter this bias by telling consumers about the prices of cheaper alternatives, and by making households more aware of the effect of changing consumption habits.

Read the article here.