Singapore’s headline inflation rises in February, MAS likely to maintain neutral policy stance in April

Singapore’s headline inflation rose in the month of February. The consumer price inflation rose by 0.5 percent on a sequential basis, reversing falls in the earlier two months. On a year-on-year basis, inflation rose 0.5 percent. Core inflation strengthened to 0.4 percent sequential from 0.3 percent earlier. Underlying this rise were higher costs of accommodation, food and services.

“We had correctly anticipated price changes in the first two of these. Within services, we note that holiday expenses increased 1.5 percent owing to higher airfares”, said ANZ in a research report.

The upturn in Singapore’s business cycle is comparatively nascent, and domestic demand is just gradually gaining breadth. Investment activity saw positive growth for the first time in six quarters in the fourth quarter. Wage growth has also been muted; against the backdrop of rising productivity, unit labor costs are easing.

“We believe this easing will continue at least through H1 2018. Accordingly, we expect headline inflation to strengthen only modestly to 0.9 percent in 2018. We expect core inflation to remain sticky at 1.5 percent”, stated ANZ.

The MAS repeated that its projection inflation range for 2018: 0-1 percent for headline CPI and 1-2 percent for core CPI. The central bank also expects that cost pressures in the economy should stay relatively restrained this year. According to the central bank, labor market conditions have rebounded, gradual absorption of the accumulated slack would temper wage pressures in the near term. Furthermore, non-labor costs such has retail rental continue to be subdued.

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

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