Singapore following weaker inflation path

Singapore June headline inflation came in at -0.3% y/y, which was -0.4% May and -0.5% April. 

The June headline inflation is in line with consensus; core inflation edged up to 0.2% y/y in same month (May: 0.1%; April: 0.4%). The pickup in headline inflation was driven by marginally higher CoEs, while the uptick in core inflation was driven by food services. Barclays expects the headline CPI to stay in negative territory in H2, driven by: 1) prolonged weakness in housing rentals; 2) further declines in private road transportation owing to a high base for COE prices and increased near-term supply; and 3) slower pass-through of higher labour costs, with businesses absorbing higher labour costs amid offsetting declines in energy and rents.

"As a result of the generally weaker outturn of inflation prints recently, the 2015 full-year inflation forecast was lowered by 60bp, to -0.5% (MAS: -0.5-0.5%) and cut their 2016 forecast 30bp, to 1.2%. Core inflation is likely to remain subdued in the near term, weighed by weaker services inflation. The July electricity tariff hike, along with potential upside risks to food prices from El Niño weather effects, should help to offset some of this weakness, but we now expect core inflation to be at the lower end of of the MAS's 0.5-1.5% forecast range. However, the persistent tightness in the labour market is likely to reassert itself in the medium term, and as such, we continue to think it unlikely the MAS will ease policy further at the October MPS, according to Barclays.