The slight pickup in Singapore's headline inflation came on the back of marginally higher CoEs and petrol prices, while the drop in core inflation was due primarily to the 50% reduction in the Foreign Domestic Worker levy (aka the 'maid levy'), announced in February's Budget 2015, as well as lower food prices, and a smaller increase in mobile tariff fees.
May headline inflation came in slightly stronger than expectated at -0.4% y/y (April: -0.5%; Barclays: -0.5%), says Barclays. Core inflation unexpectedly fell to 0.1% y/y (April: consensus: 0.4%).
Despite the downside surprise in core inflation, it continues to be attributable mostly to administrative measures (mostly health) or the supply side (eg, lower oil, via utilities, and lower food prices due to higher supply), which is offsetting the continued rise in labour costs for the time being.
"While 2015 average core inflation is likely to come in at the lower end of the MAS's forecast range of 0.5-1.5%, with the labour market remaining tight, we believe the MAS will continue to look through the supply-side driven falls in inflation and focus on the prospects for the medium term," according to Barclays.
"Meanwhile, core is likely to hit an inflection point in Q3, as the oil price recovery feeds through to utility tariffs, while food prices face upside risks from El Nino, which could hit regional agricultural output. Against this backdrop, we continue to expect the MAS to keep policy on hold in October, and would only expect a change in the event of a significant darkening in the growth outlook", adds Barclays.
