Singapore’s core inflation to rise moderately in 2017, MAS’ neutral stance to remain for extended period

The Singaporean core inflation is expected to accelerate just moderately this year. In April, the country’s headline inflation decelerated to 0.4 percent. The slowdown was mainly led by accommodation costs that dropped 6.7 percent. Specifically, the housing maintenance cost and repairs dropped sharply on a year-on-year basis because of base effects.

Thus, the headline inflation figures for May would see a reverse of the April base effect, noted ANZ in a research report. April’s core inflation accelerated because of a stronger than expected 18.7 percent year-on-year pick up in the cost of electricity and gas.

At this stage, a widespread rise in prices is not foreseen. Inflation is likely to rise, reflecting a combination of unfavourable base effects and upward adjustments in administered prices, stated ANZ. However, core inflation pressures might continue to be subdued amidst muted wage pressures.

In all, the interplay between the economy’s structural changes and the cyclical rebound in exports imply just a modest rebound in growth.

“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 range of 1-2 percent”, added ANZ.

The Monetary Authority of Singapore is expected to look through price rises caused by administrative adjustments. Their view that the labor market has softened suggests that they anticipate generalised demand-induced price pressures to stay muted. This implies that any tilt towards policy tightening is some way off, and a neutral stance would stay for an extended period, stated ANZ.