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Singapore’s headline inflation accelerates above expectations in December

Singapore’s headline and core inflation accelerated in December 2018, surprising on the upside. On a year-on-year basis, the headline inflation accelerated to 0.5 percent from prior month’s 0.3 percent. Core inflation rose to 1.9 percent year-on-year from 1.7 percent seen in the prior month. Sequentially, the headline inflation and core rate came in at 0.1 percent and 0.2 percent, respectively. The December readings came in above consensus expectations.

The acceleration in headline inflation was mainly driven by increased prices for clothing & footwear and recreation arising from more expensive holiday expenses and airfares, which would be partially seasonal in nature and subside slightly in the months ahead, noted Selena Ling, Head of Treasury Research & Strategy, OCBC Bank.

This is most likely not the case for core prices like food, education and healthcare and the tight labor market might also pressures businesses to pass on costs to the consumers. Especially, with the upcoming festive CNY season and shortages of certain food items from Malaysia, food inflation might not subside so fast.

MAS-MTI also recognised that the rebounding labor market should support a more rapid rate of wage growth in 2018 and 2019, compared to 2017, and as domestic demand strengthens further, there might be a greater pass-through of increased import and labor costs to consumer prices.

“We expect headline and core inflation to be around 1.1 percent and 1.8 percent yoy respectively in 2019.  Should core inflation cross the 2 percent handle and stay elevated above that level for some months, a further tightening of the monetary policy stance cannot be ruled out at this juncture, notwithstanding weaker global growth prospects and a more dovish FOMC”, added Selena Ling.

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