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Inflation in Singapore is expected to spike up. Headline CPI inflation for May is expected to register 1.3 percent y/y, up from 0.4 percent previously. However, the previous reading is more of an abnormality. That was partly due to the base effects associated with the disbursement of service and conservancy charges (S&CC) rebates.
Importantly, core inflation has spiked up to 1.7 percent y/y in April, up from 1.2 percent in the previous two months. Cost pressure is indeed building up and this could accelerate when the water price hike (15 percent) kicks in in July. Although the weightage of water prices in the overall CPI basket is not significant, the second-order impact of the price hike, particularly the pricing behaviour from retailers could be a risk factor.
Though policy measures to soften the net impact on consumers and businesses have been introduced, the impact on prices will be direct.
"We continue to expect inflation to stay above the one percent level for the rest of the year and average 1.2 percent overall. This will be attributed mainly to higher costs of transport and utilities, with potential spill-overs to food and beverages as well," DBS Bank commented in its latest research report.
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