Economists from JP Morgan have penciled a rise in Singapore’s core inflation levels in the next six to nine months.
This follows expectations of a “gradual increase in domestic inflationary pressures” which is slated to come up in the labour costs between 4Q2021 and 1H2022, Sin Beng Ong and Arthur Luk write in a Sep 10 note.
The duo add that an increase can also come from a rise in the global goods prices. Such an uptake is also mirrored in the firming of the domestic supply price index.
“[Between] the two, the focus has turned to the external rather than domestic drivers, with pipeline pressures remaining elevated,” add Sin and Luk.
Their move come despite the pause in the re-opening of Singapore’s economy.
See also: Strong 2Q numbers lend support to better full year; neutral policy stance expected in October
Notwithstanding a re-opening setback, the economists maintain their stance that core inflation will rise to reach 1.5% to 2.0% in 2Q2022.
Official estimates put core inflation – a gauge considered in the Monetary Authority of Singapore’s (MAS) policy decision – to rise gradually and come between 0% to 1% this year.
Meanwhile, headline, or all-items inflation - which measures the total level of inflation in the economy – is tipped to come in between 0.5% - 1.5% in 2021.
Citing a “balance of inflation risks” Sin and Luk are anticipating a shift in the slope at which the Singapore dollar nominal effective exchange rate (S$NEER) is allowed to float. They are also expecting a re-centering of the midpoint.
“The combination of these factors – the emergence of domestic price pressures amid elevated and likely rising external prices – leads us to pencil in an October MAS move to increase the BBC (S$NEER-based basket band crawl) slope from neutral and possibly to modestly re-center the band upwards,” explain Sin and Luk.
For more stories about where the money flows, click here for our Capital section
They believe that such a move would be appropriate in the upcoming October meeting given the rise in global price pressures.
Cover image: file photo
