By Romesh Navaratnarajah:

Headline inflation fell to four percent year-on-year in July compared to 5.3 percent in June, as price increases slowed in the accommodation, private road transport and oil-related sectors.

But the government warned that overall inflation for 2012 might still exceed expectations should car prices rise.

Core inflation dipped 0.3 percentage points to 2.4 percent in July. This figure excludes accommodation and private road transport costs which made up 60 percent of July’s headline inflation.

Economists also predicted that core inflation could ease further by year-end, creating the possibility for the moderation of monetary policy against the backdrop of slow economic growth.

For accommodation costs, the inflation rate in July stood at 7.8 percent, down from 10.8 percent in June, as rebates for service and conservancy charges (S&CC) were disbursed to HDB households in June last year but not in 2012, hence, boosting the hike in June.

Both the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) forecast headline inflation to remain elevated, averaging at four to 4.5 percent due to higher rentals particularly in the HDB market and low COE supply for cars.

This is despite the fact that July’s four percent inflation rate was the lowest since November 2010.

Meanwhile, Chua Hak Bin, an economist at Bank of America Merrill Lynch, expects this year’s inflation rate to stand at 4.3 percent while Barclays predicts it at around 4.2 percent.

MAS and MTI said core inflation could average 2.5 to three percent for the whole year.


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