Singapore’s inflation rises slightly in July, neutral monetary policy stance to remain for extended period

Singapore’s inflation rose slightly in July amidst higher administered water and retail prices. On a sequential basis, headline inflation fell 0.2 percent in July following a drop of 0.1 percent in the preceding month. The recent strength in the Singapore dollar is possibly the main reason for the weaker-than-expected July inflation print. Holiday expenses, travel and transport costs and food prices dropped on a month-on-month basis.

Core inflation continues to be within its recent range. Higher water charges and some select retail prices were countered by a smaller rise in cost of electricity and gas.

Even if headline inflation rises, it would greatly be due to administered price adjustments, noted ANZ in a research report. There is negligible risk of core inflation breaching the Monetary Authority of Singapore’s forecast corridor of 1 percent to 2 percent of 2017.

Therefore, the Singaporean central bank is expected to look through price rises caused by administrative adjustments. Any tilt towards tightening policy is believed to be some way off, and a neutral stance is expected to remain for an extended period, stated ANZ.

“Demand-pull price pressures are likely to remain contained as a slack labour market continues to constrain demand. We maintain our view that a neutral monetary policy stance is still warranted”, added ANZ.

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