Singaporean headline inflation eases in December 2017, MAS likely to maintain neutral stance in April

Singapore’s headline inflation slowed in the month of December, coming in below expectations. The consumer price inflation decelerated to 0.4 percent year-on-year from November’s 0.6 percent. On a sequential basis, headline inflation came in at 0.1 percent. Private road transport costs dropped 0.9 percent sequentially, showing a moderation in Certificate of Entitlement (COE) prices for motor vehicles. The fall was driven by utilities component that fell 0.3 percent. Core inflation rate also eased in the month from 1.5 percent to 1.3 percent.

According to an ANZ research report, headline inflation is expected to strengthen modesty to 0.9 percent year-on-year, while core rate is expected to remain at 1.5 percent. The upturn in Singaporean business cycle is comparatively nascent and domestic demand has yet to gain in breadth. Investment activity continues to be subdued.

Wage growth has also been weak and against the backdrop of increasing productivity, has permitted for unit labor costs to fall. This decline might continue through the first half of this year, stated ANZ.

In all, price pressures in the system are expected to remain muted. There might be policy-driven rises in inflation but demand pull pressures are unlikely to surface at least in the first half of 2018. On the policy side, the government has signaled at a rise in Goods and Services Tax rate in the upcoming 2018 budget.

“We believe that the MAS can afford to maintain its neutral policy stance in its April review and exit from it only in October”, added ANZ.

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