Singapore’s headline consumer price index (CPI) rose 2.1% year-on-year (y-o-y) in April, coming within the Bloomberg consensus estimate of 2.0%, according to the Department of Statistics Singapore (SingStat) on May 24.
Core CPI, which marks price increments in sectors with the exception of accommodation and private transport, was up 0.6% y-o-y in April, albeit lower than the Bloomberg consensus estimate of 0.9%.
"This is the highest headline CPI since May 2014 and was largely attributable to the low base last year during the circuit breaker (CB) period. In particular private road transport costs have risen with higher car prices and the resumption of ERP (which were suspended during CB last year), whilst accommodation costs have also risen with the pickup in housing rents," writes OCBC Bank's Selena Ling, head of treasury research & strategy.
"Again, the uptick in core CPI, hitting the highest since December 2019, was attributed to a smaller decline in electricity & gas prices and retail and other goods, namely the upward revision of electricity & gas tariffs given rising commodity prices, while prices of telecommunication equipment and personal effects have also been rising in line with the economic recovery," she adds.
The CPI measures the average price changes in a fixed basket of consumption goods and services commonly purchased by resident households over time.
The higher inflation was mainly contributed by higher transport prices with a 9.7% increase y-o-y in April.
Within the sector, private transport saw the highest increase at 12.9% y-o-y, attributable to the higher car and petrol costs.
"COE premiums are climbing to multiyear highs partly due to the reduction of the COE quota for May to July 2021. The latest tender for Open COE on May 24 came in at $62,000, the highest since July 2015," note Maybank Kim Eng analysts Chua Hak Bin and Lee Ju Ye.
Public transport stood 2.2% y-o-y higher while other transport services fell 2.2% y-o-y.
SEE:Singapore's consumer price index declines across all household groups in 2H2020
Household Durables & Services came in a far second with a 1.2% increase y-o-y, while Food and Education each saw a 1.0% y-o-y increase respectively.
"Food inflation eased to the slowest pace since January 2013, due to the significant easing of non-cooked food prices – partly due to a high base last year as lockdowns across the region disrupted food supply and drove up prices. Prepared meals, on the other hand, picked up slightly," write Maybank Kim Eng's Chua and Lee.
Meanwhile, Clothing & Footwear declined 4.9% y-o-y on a broad-based decline in the sector, with lower prices registered for clothing, other articles and footwear.
Communication slipped by 0.3% y-o-y mainly due to a drag by postage and courier services, which stood 11.6% lower y-o-y and mitigated by a 4.4% y-o-y increase in telecommunication equipment.
Miscellaneous Goods & Services also declined slightly by 0.3% y-o-y on the back of lower personal care, alcoholic drinks and tobacco, as well as social services prices, slightly offset by an increase in personal effects and other miscellaneous services.
For the period from January to April, headline CPI rose 1.1% y-o-y, while core CPI inched up slightly at 0.3% y-o-y.
Looking ahead, Maybank Kim Eng's Chua and Lee estimate headline CPI to hover between 2-2.5% for the rest of 2Q2021, giving the low base effects from 2020's CB period, before easing in the second half.
"The latest Phase 2 (Heightened Alert) measures may dampen inflation pressures on some components, including point-to-point transport, clothing & footwear, and recreation & culture. But we do not expect the impact on prices to be as significant as the second quarter of last year, when the whole world locked down and global demand collapsed. The US, UK and Europe are reopening, which could fan global commodity prices, even as Singapore and a few Asean countries are locking down," they write.
To this end, the analysts have kept their CPI forecasts for average headline inflation at 1.3% and core CPI at 0.9% in FY2021.
"As highlighted by the MAS, we expect private transport and accommodation costs to remain elevated for the rest of the year, on the back of higher COE premiums and rising rental demand, but wage pressures will remain subdued. We think there is a non-negligible probability (of about 30%) that the MAS may tighten at the October meeting if inflation overshoots and the Covid outbreak recedes, shifting to a “slightly” gradual and modest appreciation stance," they add.
OCBC's Ling has also kept her headline and core CPI forecasts for FY2021 unchanged at 1.2% y-o-y and 0.7% y-o-y respectively, compared to the official inflation forecast ranges of 0.5-1.5% and 0-1%. The low base of the CB period in 2Q2020 are "likely to buoy economic prints" for the 2Q2021.
"The reiteration of muted wage growth expectations amid the current labour market slack, as well as subdued commercial rents amid the sluggish retail sector, are likely to continue to underpin the policymakers’ comfort to look past the current headline inflation uptick without being pressured into premature policy recalibration," she says.
"This underscores our house view that the status quo will be maintained at the October monetary policy review, especially given that there is some downside risk to 2Q2021 GDP growth momentum with the recent Covid developments. Moreover, the cancellation of key events like the Shangri La Dialogue and World Economic Forum and the suspension of the S’pore-Hong Kong travel bubble may also dampen earlier exuberance about 2H2021 recovery prospects," she adds.
Like Ling, the economists at RHB Group Research also view CPI inflation levels to remain elevated in May and June due to the low base effect from the same period in 2020.
"Excluding the base effect, pressure from global commodity prices should slowly ease in the coming months following a cap on the increase in oil prices. Meanwhile, cost pressures from the demand side will likely be dampened by the imposition of Phase 2 (Heightened Alert) measures," writes the RHB team.
While headline CPI stood within JP Morgan analyst Ong Sin Beng's expectations of 1.7% y-o-y, Ong foresees that the recent tightening of measures could affect core CPI in May.
"Moreover, while the restrictions are expected to be relaxed in June, it is not clear that the labour market might be as quick to respond," he writes.
"Despite the upside surprise to headline CPI, the MAS CPI forecast range for the full year remains between 0.5-1.5% y-o-y (JPMorgan: 1.8% y-o-y) and core remains at between 0-1% y-o-y (JPMorgan: 0.5% y-o-y). Given this forecast, our baseline remains that the MAS move towards NEER policy normalisation will only occur in April next year," he adds.
UOB economist Barnabas Gan says the risk for inflation in 2021 is "balanced".
"Higher external inflation amid higher commodity prices could continue in the year ahead, although potentially higher global oil supply in 2H2021 may limit the upward price pressures then. Increased COVID-19-led risks suggest the persistence of negative output gaps seen in some of Singapore’s key trading partners, which will likely cap import prices pressures," he writes.
The recent stricter measures imposed may also dampen consumer prices in the immediate horizon, he adds.
