Singapore headline inflation seen tad lower on sluggish property market

Singapore first quarter headline inflation is expected to be tad lower from the last quarter on the backdrop of sluggishness in property market. The gross domestic figures to be released Wednesday shall remain weak amid negative inflation still persistent in the economy.

A modest revision of GDP to -0.1 pct on quarter is expected, down from a zero growth profile projected in the advance estimates. On a year-on-year basis, the headline number is expected to a little lower to 1.7 pct, from 1.8 pct previously.

However, the services sector is expected to see more downslides. Although the advance number has factored in weakness in the services sector (1.9 pct y/y, -3.8 pct q/q), the persistent decline in loan growth still remains concern, DBS reported.

Moreover, the financial sector has been the key driving agent of the nation’s growth figures, accounting for one-third of the nation’s GDP and with the financial numbers taking a toll, growth is ought to falter in the near term.

Overall manufacturing growth is now expected to contract by 1.0 pct y/y, up from the advance estimate of -2.0 pct. However, this stems mainly from a stunning 22 pct y/y surge in the biomedical cluster in the quarter. Without this boost, overall manufacturing sector would have contracted by 5.7 pct.

Meanwhile, CPI inflation for April 2016 has remained in the negative territory. The headline number registered -0.5 pct y/y in the month, up from -0.7 pct previously. Housing and utilities index fell by 1.9 pct y/y (accommodation: -0.9 pct, fuels & utilities: -9.6 pct) while transport cost slipped by 5.4 pct.

However, such negative territory in inflation is expected to continue in the near term. The excess supply

in housing stock and the associated downward pressure on rental implies that the housing CPI index may continue to fall further. In addition, the Land Transport Authority had announced increase in the supply of COE quota. This could possibly mean weakness in private transport cost index.

"Nonetheless, CPI inflation is expected to revert back to positive level from 3Q16 onwards on account of a lower base effect and possible recovery in oil prices," DBS commented in a research note.