Economists eye growth, labour data to track MAS's next move

Singapore

AS the disinflationary effects of low oil prices wear off, economists are looking towards growth and labour market data to anticipate Singapore's central bank's next move.

They point to the fact that even though Monday's release of consumer price movements here in April improved more than expected, the Monetary Authority of Singapore (MAS) made no change to its inflation forecast for the full year.

This could mean that MAS has already factored in these improvements when it most recently eased monetary policy in April.

"CPI (consumer price index) data has already been factored into MAS's slope flattening on April 14, and we expect sequential growth and jobs data to be more important in the October policy decision," wrote Citi economist Kit Wei Zheng.

With this better price improvements, Mr Kit expects that Q1 GDP (gross domestic product) data will be revised upwards to 2 per cent from the current 1.8 per cent. Therefore, there are no grounds for another easing by MAS, he said.

"Nonetheless, any subsequent data disappointments increasing the downside risks to MAS's implicit expectations could raise the risk of downward recentering in October," he said.

Full GDP, inflation and employment data for the first quarter of this year will be released on Wednesday morning.

As it is, Monday's inflation data got many economists predicting - almost unanimously - that the trend of falling prices will hit a trough in this quarter.

This cycle of falling prices is currently in its 18th month and the longest stretch on record. The last time prices kept falling for this long was four decades ago.

Headline inflation, or CPI for all items, dipped 0.5 per cent in April from a year ago, wrote the MAS and the Ministry of Trade and Industry (MTI) in a joint release. This was a smaller drop than the one per cent fall in March. It also beat market consensus.

At the same time, core inflation, which strips out accommodation and private road transport costs, also increased at a faster pace in April. It went up by 0.8 per cent from a year ago, as compared to 0.6 per cent in March.

Economists say that low oil prices have brought down inflation markedly last year. This gives prices a lower base to start off from this year.

Together with oil prices recovering, results are starting to show.

"CPI inflation is expected to revert to positive levels from the third quarter of 2016 onwards, on account of a lower base effect and possible recovery in oil prices," wrote Irvin Seah, DBS senior economist.

Other houses that see prices hitting bottom soon include UOB, OCBC and ANZ.

As the disinflationary effects of oil prices fade off, a clearer picture of the total level of demand and supply in Singapore's economy emerges.

"Low productivity and demographic issues will exert their influence on aggregate supply in the economy, and we should start to see prices heading up," said ANZ economist Ng Weiwen.

"Furthermore, MAS' credible commitment to a nominal S$NEER (Singapore dollar nominal effective exchange rate) anchor helps to tie down inflation expectations," he added.

This might bring about some uptick in economic sentiment.

In fact, some economists already see this taking root in the government's outlook.

"MAS-MTI's April inflation outlook was largely unchanged, with the only minor difference being that 'the increase in core inflation will be mild', rather than 'milder' in the March statement," noted OCBC's Selena Ling.

MAS sees core inflation forecast to be in the lower half of 0.5 to 1.5 per cent range for 2016. Headline inflation will remain negative, and average -1 to 0 per cent.