Singapore headline inflation edges higher on increases in energy related costs, administered prices

Headline inflation in Singapore edged higher on the back of increases in energy related costs and administered prices. Core inflation pressures should, however, remain muted given the weakness in the labor market. This dynamic is consistent with the Monetary Authority of Singapore’s (MAS) forward guidance to maintain a neutral policy for an extended period.

Headline inflation rose 0.7 percent y/y in March, similar to the pace of increase in the preceding month. Private road transport costs were the main driver of headline inflation, increasing by a higher than anticipated 4.5 percent y/y. At the same time, the MAS’ core inflation figure, which excludes accommodation and private road transport costs remained stable at 1.2 percent y/y.

Further, inflation should rise, reflecting a combination of unfavorable base effects and upward adjustments in administered prices. These administrative price increases include adjustments in car park charges and household refuse collection fees, which took effect from December 2016 and January 2017, respectively.

Increases in water prices and service & conservancy charges for HDB housing, as announced in the FY2017 budget will also lift administered prices. Core inflation pressures should, however, remain subdued amid muted wage pressures.

"We forecast core inflation to rise only moderately to 1.3 percent in 2017 from 0.9 percent in 2016, in the lower half of the MAS’s forecast corridor of 1-2 percent," ANZ Research commented in its latest report.