Analysts believe hike in inflation still at manageable level

Victor Kang24 Jun 2021

Core inflation, which excludes accommodation and private road transport costs, is still believed to be at manageable levels. 

Despite the increase in consumer prices in May – in which all-items inflation hit its highest level since end-2013 – analysts still do not expect the Monetary Authority of Singapore (MAS) to normalise currency settings until April next year, reported The Business Times (BT).

This comes as core inflation, which excludes accommodation and private road transport costs, is still believed to be at manageable levels.

“I don’t think inflation is a cause of concern just yet, nor it’s likely to be anytime in the foreseeable future,” ING Senior Economist for Asia Prakash Sakpal told BT.

With this, the MAS is expected to leave the currency setting unchanged during its October review.

Headline inflation rose to 2.4% in May from 2.1% in the previous month, while core inflation climbed to 0.8% from 0.6%.

In a joint statement, the MAS and Ministry of Trade and Industry (MTI) attributed the hike partly to a year-ago low base, when the city-state was in a quasi-lockdown.

Sakpal added that the increase in consumer prices is also due to supply-side factors, like oil price, while “the demand side pressure remains muted amidst resurgent COVID-19 spread”.

Maybank Kim Eng economists Lee Ju Ye and Chua Hak Bin still expect inflation to peak in July, rising at about 3% for all item prices and 1.3% for inflation.

The duo raised their full-year forecasts, with core inflation projected to hit 1% this year, up from their earlier estimate of 0.9%, before increasing further to 1.4% next year.

UOB economist Barnabas Gan noted that the city-state witnessed a “persistent deflation environment in the period between April and Nov 2020, on the back of a relatively weaker economic environment and low oil prices then”.

“As such, the rise of consumer prices may continue to be observed in the months ahead, although it is expected to be transitory when the base effects eventually dissipate,” he said as quoted by BT.

Meanwhile, Oxford Economics Analyst Jung Sung Eun pointed that over three-quarters of the hike in inflation comes from the transport component alone.

“While this will push up headline inflation, MAS core inflation lies well below 2%,” she said as quoted by BT.

Higher oil prices pushed private road transport inflation to 14.5% in May, while a hike in housing rent drove accommodation costs to 0.9%.

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Service inflation stood at 1.4%, following an increase in point-to-point transport, telecom services and health insurance costs.

“On the flip side, the absence of tourism-led demand continued to pressure retail prices lower. Prices related to consumer goods were generally weaker,” said Gan as quoted by BT.

In May, the cost of retail and other goods dipped 0.8% year-on-year, as a 4.1% drop in clothes and shoes prices offset the 2.4% hike in household durables.

HSBC Economist Yun Liu warned that a rapid hike in accommodation costs may indicate “surging property prices” within the market.

“MAS normalisation is unlikely this year, but it may opt to consider macroprudential tightening to curb price growth,” she wrote in a report and quoted by BT.

Dr Chua and Lee expect to see an uptick in wages in the coming year, citing structural changes like tighter supply of foreign labour as well as the expansion of Progressive Wage Model salary floors for the retail and food and beverage sectors.

The MAS and MTI still maintained their full-year forecast, with core inflation averaging 0% to 1% this year and headline inflation dropping between 0.5% and 1.5%.

They also reiterated that core inflation is expected to “continue to gradually increase”, while all-items inflation will likely ease in the second half of this year.


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Victor Kang, Digital Content Specialist at PropertyGuru, edited this story. To contact him about this story, email:


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