Monetary Authority of Singapore expects core consumer inflation to pick up towards 2 pct y/y by late 2018

The Monetary Authority of Singapore (MAS) expects to see the county’s core consumer price inflation (CPI) to pick up towards 2 percent y/y later in the year. Based on domestic developments, a further modest tightening in October cannot be ruled out, though this will depend largely on how the external environment evolves.

The country’s CPI inflation rose to 0.6 percent y/y from 0.4 percent y/y in the previous month. On a sequential basis, CPI rose by 0.1 percent m/m in June. This was driven by higher food prices (0.2 percent m/m) and services prices – most notably holiday expenses, which increased by 2 percent m/m.

Accommodation costs appear to have halted their multi-year decline, posting a 0.1 percent m/m increase in the absence of any S&CC rebate. This suggests that accommodation costs will cease to be a drag on headline inflation on a sequential basis going forward.

Of more significance for monetary policy is the rise in core inflation to 1.7 percent y/y from 1.5 percent the previous month. This is higher than market expectations, and comes after being stuck largely within a 1.3-1.5 percent range over the previous 10 months (barring the spike driven by the tobacco tax hike in February this year). This is a further sign that improving growth is starting to filter through into price pressures, though it is still modest at this stage.

"With actual core inflation averaging 1.5 percent in H1 this year, this implies a further rise in core inflation towards 2 percent y/y later in the year. This will hinge on a continued pick-up in domestic demand and the labour market," ANZ Research commented in its latest report.