Singapore posts negative CPI growth in 2016, higher energy prices to support this year

Singaporean consumer inflation for 2016 registered a negative growth for two consecutive years, coming at -0.5 percent after posting same negative growth of -0.5 percent in 2015.

However, the days of negative inflation is officially over. CPI inflation for December 2016 posted a reading of 0.2 percent y/y, up from zero in the previous month. This is also the strongest indication to date that inflation will be heading steadily northward in the coming months, reported DBS Bank in its research note.

Earlier policy effects on property and car purchases have lapsed and oil prices having already bottomed, are trending higher. Barring any spike-up in commodity and energy prices, the headline price barometer is expected to hover between 0-0.5 percent in the coming months before creeping higher to about 1.0 percent from the second quarter onwards. This should thus deliver an average inflation of 0.9 percent in 2017, they added.

The DBS Bank in its research note mentioned that the higher inflation will obviously raise talks of the possibility of the Monetary Authority of Singapore reverting back to an appreciation path in the upcoming policy review in April. However, inflation is still below historical average and set to come in between the official forecast range of 0.5-1.5 percent for all item CPI inflation and 1-2 percent for core inflation.

Moreover, although GDP growth had surprised on the upside in the last quarter of 2016, there are still pockets of risk in the horizon. With these in mind, a reversion back to an appreciation stance at this juncture could be premature.