Economists and analysts generally view that Singapore’s headline inflation will continue gaining in the coming months before moderating, following May inflation data released by the Singapore Department of Statistics (SingStat) on June 23.
See also: Singapore’s inflation levels continue upward trend in May
Singapore headline inflation rose 2.4% y-o-y in May, beating Bloomberg consensus estimates of 2.2%. It also follows headline inflation of 2.1% recorded in April.
Core inflation, which measures price increments in sectors with the exception of accommodation and private transport, was up 0.8% y-o-y in May, following 0.6% in April.
UOB economist Barnabas Gan highlights that the rising inflation rate is consistent with trends seen across Asia. “This is the fifth straight month where the inflation rate strengthened from the previous reading,” he says. He also notes that headline inflation grew at its fastest pace since November 2013, when it grew 2.6% y-o-y.
Nonetheless, Gan points out that the increase in both headline and core inflation is a function of the low bases the previous year, where headline and core consumer price index (CPI) deflated 0.8% y-o-y amid a weaker economic environment and low oil prices.
“As such, the rise of consumer prices may continue to be observed in the months ahead, although it is expected to be transitory when the base effects eventually dissipate,” he comments.
Given that inflation has beaten market estimates since February, Gan has upgraded his headline inflation forecast to an average of +1.4% in 2021, up from +1% previously, translation to headline inflation of +1.3% in 3Q2021 and 1.1% in 4Q2021. “Core inflation, on the other hand, should stay below the 2% handle at 1.5% in 2H2021,” he adds.
Maybank Kim Eng has also raised its average headline CPI forecast for 2021, up from +1.3% previously to +1.8%. The higher forecast reflects the larger-than-expected pick-up in private transport and accommodation costs, as well as higher commodity prices.
Analysts Chua Hak Bin and Lee Ju Ye point out that the Phase 2 heightened measures did not dampen price pressures, with most categories recording month-on-month increases from April.
They expect headline inflation to remain elevated in 2Q and peak in July before moderating. “Headline inflation may peak at about 3% while core inflation will likely peak at about 1.3%, by our estimates,” they say.
In contrast, RHB Group Research expects June headline inflation to ease on a y-o-y basis due to lower base effects, though the overall pace of inflation is expected to remain ‘robust’.
“High global commodity prices will continue to feed into costs of private transport along with electricity and gas prices. In addition, demand side pressures will contribute to price increases in the services and non-essential goods sectors in June as restrictions are gradually relaxed in Phase 3 of the opening of the economy,” RHB’s Singapore Research team comments.
JP Morgan’s Sin Ben Ong opines that while supply-side price pressures will boat headline inflation in 2H2021, core inflation will see a more gradual rise, given economic uncertainties impacting labour costs.
“The risk is that the longer this uncertainty around Covid-19 persists, so too does the likelihood of hysteresis across sectors with its knock-on to labor markets,” he says. “It is for this reason that despite the rise in headline inflation, central banks, including the MAS, remain focused on core inflation, which more closely mirrors domestic demand,” he adds.
Ong is forecasting average headline inflation of +2% and core inflation of +0.8% for 2021, compared to the Monetary Authority of Singapore's (MAS) forecast range of 0.5%-1.5% for headline inflation and 0%-1% for core inflation. "Given this forecast, our baseline remains that the MAS move towards nominal effective exchange rate (NEER) policy normalization will only occur in April next year," he remarks.
Photo: Bloomberg
